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  • Ioannis - P - Papanastasopoulos - 2009 - Effectiveness and Efficiency of The Electricity Consumer's Contracts' Regulation in A European Context

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    Ioannis Papanastasopoulos
    20 просмотров90 страниц
    Summary: Electricity industry has entered into liberalization process since the early nineties. The reform’s main goals are firstly introduction of competition where possible mostly in the competitive elements of the industry (supply, generation), secondly market integration in a single European electricity market and thirdly an adequate level of small consumer protection. A lot of ink has been spilt and a lot of hair has been split on how competition can be effectively introduced in the supply market. The challenges confronted by the regulators are neither few nor easy to overcome. Competition is expected to work on consumers’ interest. It has, though, to be established beforehand. The natural monopoly regulation has now changed to become regulation for facilitation of competition. Consumers are expected to benefit in their electricity contract quality too. Improved contract quality means better allocative efficiency. The competitive process functions as a form of natural protection to electricity consumers. Under the competitive pressure supply firms develop diverse innovative types of contracts fairer and more efficient. In this way more added value can be created from the reform. Under a competitive environment consumers are expected to enjoy significantly enhanced contract quality. For this to happen though, three assumptions must hold at least to some extend; for a market to be Pareto efficient in a general equilibrium, complete markets for all commodities should exist, actors in the market should not have market power and information should be symmetric (B. Hermalin, A. Katz, R. Craswell, 2006, pg 17). But competition does not come alone. There, where only one option used to exist, now opportunity, searching, switching, contract-signing costs emerge and the consequent information asymmetry problem as well. In reality markets may not exist for some goods (such as contract quality) for which the consumers’ willingness to pay exceeds the costs for their production. Markets might not exist as a result of information problems and transaction costs in the case of external effects and public goods. Under these circumstances, regulation can ameliorate and bring closer to optimal the allocative efficiency of the economy (J. A. den Hertog, 1999, pg228). The asymmetric information problem known as Signing without Reading problem deters the contract quality from being optimal and distorts allocative efficiency in the market. Unfair and/or inefficient terms are still found in the consumers contracts, consumers complain about contract transparency and the difficulty to obtain information from the electricity contracts available in the market. Thus electricity contract regulation is suggested (G. DeGeest, 2002, 235-239). The thesis of this paper is that electricity regulation is important but at the same time the form of regulation matters as well. Different forms of contract regulation and consumer protection can significantly influence the other goals pursued by the reform and especially the market integration goal. Thus this paper examines whether regulation is necessary in regards to electricity consumer contracts. If yes of which form and to what extent. These questions are answered taking into account that contract regulation can function both as a competition catalyst and as barrier to market entry and exit for foreign investors-entrants in the member state’s supply market. Finally the analysis focuses on how regulation of electricity contracts can affect the reform's two main goals: competition and market integration to single European electricity market. The information disclosure duties in electricity consumer contracts that the European level regulator has mostly employed as measures are found rather effective in combating information asymmetry (Signing without Reading) in the market. The European level and member state level regulatory choices are found efficient in most of the cases. On the other hand memb

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    Summary: Electricity industry has entered into liberalization process since the early nineties. The reform’s main goals are firstly introduction of competition where possible mostly in the competitive elements of the industry (supply, generation), secondly market integration in a single European electricity market and thirdly an adequate level of small consumer protection. A lot of ink has been spilt and a lot of hair has been split on how competition can be effectively introduced in the supply market. The challenges confronted by the regulators are neither few nor easy to overcome. Competition is expected to work on consumers’ interest. It has, though, to be established beforehand. The natural monopoly regulation has now changed to become regulation for facilitation of competition. Consumers are expected to benefit in their electricity contract quality too. Improved contract quality means better allocative efficiency. The competitive process functions as a form of natural protection to electricity consumers. Under the competitive pressure supply firms develop diverse innovative types of contracts fairer and more efficient. In this way more added value can be created from the reform. Under a competitive environment consumers are expected to enjoy significantly enhanced contract quality. For this to happen though, three assumptions must hold at least to some extend; for a market to be Pareto efficient in a general equilibrium, complete markets for all commodities should exist, actors in the market should not have market power and information should be symmetric (B. Hermalin, A. Katz, R. Craswell, 2006, pg 17). But competition does not come alone. There, where only one option used to exist, now opportunity, searching, switching, contract-signing costs emerge and the consequent information asymmetry problem as well. In reality markets may not exist for some goods (such as contract quality) for which the consumers’ willingness to pay exceeds the costs for their production. Markets might not exist as a result of information problems and transaction costs in the case of external effects and public goods. Under these circumstances, regulation can ameliorate and bring closer to optimal the allocative efficiency of the economy (J. A. den Hertog, 1999, pg228). The asymmetric information problem known as Signing without Reading problem deters the contract quality from being optimal and distorts allocative efficiency in the market. Unfair and/or inefficient terms are still found in the consumers contracts, consumers complain about contract transparency and the difficulty to obtain information from the electricity contracts available in the market. Thus electricity contract regulation is suggested (G. DeGeest, 2002, 235-239). The thesis of this paper is that electricity regulation is important but at the same time the form of regulation matters as well. Different forms of contract regulation and consumer protection can significantly influence the other goals pursued by the reform and especially the market integration goal. Thus this paper examines whether regulation is necessary in regards to electricity consumer contracts. If yes of which form and to what extent. These questions are answered taking into account that contract regulation can function both as a competition catalyst and as barrier to market entry and exit for foreign investors-entrants in the member state’s supply market. Finally the analysis focuses on how regulation of electricity contracts can affect the reform's two main goals: competition and market integration to single European electricity market. The information disclosure duties in electricity consumer contracts that the European level regulator has mostly employed as measures are found rather effective in combating information asymmetry (Signing without Reading) in the market. The European level and member state level regulatory choices are found efficient in most of the cases. On the other hand memb

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    Ioannis - P - Papanastasopoulos - 2009 - Effectiveness and Efficiency of The Electricity Consumer's Contracts' Regulation in A European Context

    Загружено:

    Ioannis Papanastasopoulos
    Summary: Electricity industry has entered into liberalization process since the early nineties. The reform’s main goals are firstly introduction of competition where possible mostly in the competitive elements of the industry (supply, generation), secondly market integration in a single European electricity market and thirdly an adequate level of small consumer protection. A lot of ink has been spilt and a lot of hair has been split on how competition can be effectively introduced in the supply market. The challenges confronted by the regulators are neither few nor easy to overcome. Competition is expected to work on consumers’ interest. It has, though, to be established beforehand. The natural monopoly regulation has now changed to become regulation for facilitation of competition. Consumers are expected to benefit in their electricity contract quality too. Improved contract quality means better allocative efficiency. The competitive process functions as a form of natural protection to electricity consumers. Under the competitive pressure supply firms develop diverse innovative types of contracts fairer and more efficient. In this way more added value can be created from the reform. Under a competitive environment consumers are expected to enjoy significantly enhanced contract quality. For this to happen though, three assumptions must hold at least to some extend; for a market to be Pareto efficient in a general equilibrium, complete markets for all commodities should exist, actors in the market should not have market power and information should be symmetric (B. Hermalin, A. Katz, R. Craswell, 2006, pg 17). But competition does not come alone. There, where only one option used to exist, now opportunity, searching, switching, contract-signing costs emerge and the consequent information asymmetry problem as well. In reality markets may not exist for some goods (such as contract quality) for which the consumers’ willingness to pay exceeds the costs for their production. Markets might not exist as a result of information problems and transaction costs in the case of external effects and public goods. Under these circumstances, regulation can ameliorate and bring closer to optimal the allocative efficiency of the economy (J. A. den Hertog, 1999, pg228). The asymmetric information problem known as Signing without Reading problem deters the contract quality from being optimal and distorts allocative efficiency in the market. Unfair and/or inefficient terms are still found in the consumers contracts, consumers complain about contract transparency and the difficulty to obtain information from the electricity contracts available in the market. Thus electricity contract regulation is suggested (G. DeGeest, 2002, 235-239). The thesis of this paper is that electricity regulation is important but at the same time the form of regulation matters as well. Different forms of contract regulation and consumer protection can significantly influence the other goals pursued by the reform and especially the market integration goal. Thus this paper examines whether regulation is necessary in regards to electricity consumer contracts. If yes of which form and to what extent. These questions are answered taking into account that contract regulation can function both as a competition catalyst and as barrier to market entry and exit for foreign investors-entrants in the member state’s supply market. Finally the analysis focuses on how regulation of electricity contracts can affect the reform's two main goals: competition and market integration to single European electricity market. The information disclosure duties in electricity consumer contracts that the European level regulator has mostly employed as measures are found rather effective in combating information asymmetry (Signing without Reading) in the market. The European level and member state level regulatory choices are found efficient in most of the cases. On the other hand memb

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    из 90

    Ioannis P.

    Papanastasopoulos (2009)

    Utrecht University Law and Economics Master Program LLM

    Student: Ioannis P. Papanastasopoulos

    Supervisors: Ms Dr Annet e !ttow" Mr Dr #ac$ues #. Siegers

    Thesis Research Paper: Effectiveness and Efficiency of the Electricity Consumer Contracts Regulation in a European Context

    Ioannis P. Papanastasopoulos (2009)

    TABLE OF CONTENTS
    TABLE OF CONTENTS..........................................................................................................2 Section 1: Introduction..............................................................................................................3 Section 2: Main Concepts E!!icienc" and E!!ecti#eness.........................................................$ 2.1 E!!icienc" and Fairness in Consu%er Contracts.............................................................& 2.1.1 Contractua' C'auses and E!!icienc" ........................................................................& 2.1.2 Fairness E!!icienc" and t(e Si)nin) *it(out +eadin) ,ro-'e% in SFC.................. 2.2 E!!ecti#eness and E!!icienc" o! t(e Le)a' and +e)u'ator" Fra%e*or/........................12 2.2.1 E!!ecti#eness and E!!icienc" as Criteria................................................................12 2.2.2 0oa's and O-1ecti#es as Criteria............................................................................12 Section 3: Le)a' and +e)u'ator" Fra%e*or/..........................................................................13 3.1 Le)is'ation.....................................................................................................................1$ 3.1.1 T(e 32425534EC 6irecti#e 7Second E'ectricit" 6irecti#e)....................................1$ 3.1.2 T(e T(ird Ener)" ,ac/a)e.....................................................................................25 3.1.3 T(e .34134EEC Counci' 6irecti#e on 8n!air Ter%s in Consu%er Contracts........22 3.1.2 A Conc'udin) +e#ie* o! t(e Le)a' Fra%e*or/....................................................23 3.2 Me%-er Sate Le#e' +e)u'ator" Fra%e*or/.................................................................22 3.2.1 Speci!ic +e)u'ator" C(oices..................................................................................23 3.2.2 Conc'udin) +e#ie* o! +e)u'ator" Fra%e*or/ ....................................................2& Section 2: Monopo'istic Mar/et Structures -e!ore Li-era'i9ation t(at sti'' E:ist in European Conte:t ...................................................................................................................................2; 2.1 T(e ,rice Cap +e)u'ated E'ectricit" Co%pan" Case....................................................2. 2.1.1 T(e ,rice Cap Mec(anis%.....................................................................................2. 2.1.2 ,rice Cap and <ua'it"............................................................................................31 2.1.3 ,rice Cap and Contract <ua'it"..............................................................................31 2.1.2 T(e cause o! incenti#es distortion under ,rice Cap...............................................33 2.2 T(e State O*ned Enterprise .........................................................................................32 2.2.1 State O*ned Enterprises 7SOE): Brie! =istor" 0oa's and O-1ecti#es................33 2.2.2 A T(eoretica' Fra%e*or/ !or SOE Criticis%........................................................33 2.2.3 Criticis% and Concerns a-out 8ti'it" SOE ...........................................................3$ 2.2.2 SOE and E'ectricit" Contracts...............................................................................3& 2.2.3 T(e Case Stud" o! 0reece......................................................................................3; 2.2.$ State O*ned Enterprise Conc'usions.....................................................................21 2.3 T(e Ne* Le)is'ation and t(e Monopo'istic +e)i%es..................................................21 2.2.1 T(e ,ri#ate Monopo'" ..........................................................................................22 2.2.2 T(e SOE ................................................................................................................22 Section 3: T(e co%petiti#e supp'" %ar/et i%p'ications.........................................................23 3.1 Consu%ers in a Ne* +o'e.............................................................................................22 3.2 Co%petiti#e Supp'" Mar/ets: A Contract ,aradise>....................................................23 3.3 In!or%ation Costs and Si)nin) *it(out +eadin) in t(e Li-era'i9ed E'ectricit" Supp'" Mar/et.................................................................................................................................2$ 3.3.1 Consu%ers? +ationa'it" and S*itc(in) Errors.......................................................2& 3.3.2 Consu%ers? Si)nin) *it(out +eadin) or 8nderstandin) E'ectricit" Non ,rice +e'ated Ter%s: Co%parison *it( ,rice +e'ated Ter%s..................................................2; 3.3.2 An E@uation to Esti%ate t(e Ti%e a +ationa' Consu%er Spends on +eadin) and E#a'uatin) A'ternati#e Contract O!!ers..........................................................................35 3.3.2 T(e A#era)e Austrian Consu%er E:a%p'e............................................................32 Section $: E!!ecti#eness and E!!icienc" E#a'uation o! t(e Le)a' and +e)u'ator" Fra%e*or/ .................................................................................................................................................33 2

    Ioannis P. Papanastasopoulos (2009)

    $.1 E!!ecti#eness and e!!icienc" in re)ard to retai' co%petition )oa'.................................3$ $.1.1 ,ro%otin) Co%petition t(rou)( In!or%ation 6isc'osure 6uties ..........................3$ $.1.2 Speci!ic Contract Content +e)u'ation ...................................................................$5 $.2 E!!ecti#eness and E!!icienc" in +e)ard to Consu%er ,rotection 0oa'........................$2 $.3 E!!ecti#eness and E!!icienc" in re)ard to Mar/et Inte)ration 0oa'..............................$$ Section &: Conc'usions............................................................................................................$. ANNEA A...............................................................................................................................&3 List o! Scienti!ic Literature:....................................................................................................;3

    Section 1: Introduction
    E'ectricit" industr" (as entered into 'i-era'i9ation process since t(e ear'" nineties. T(e re!or%?s %ain )oa's are !irst'" introduction o! co%petition *(ere possi-'e %ost'" in t(e co%petiti#e e'e%ents o! t(e industr" 7supp'" )eneration) and second'" %ar/et inte)ration in a sin)'e European e'ectricit" %ar/et. T(ese t*o )oa's are re!ined and speci!ied -" !irst o-1ecti#es set in t(e Second E'ectricit" 6irecti#e?s recita's. T(e !irst o-1ecti#e noted is to ensure a 'e#e' p'a"in) !ie'd in )eneration. T(e second is to tac/'e t(e o-stac'es t(at %ar/et do%inance and predator" -e(a#ior set to co%petition in t(e %ar/et. T(e t(ird o-1ecti#e t(at t(e directi#e sets is to ensure non discri%inator" trans%ission and distri-ution tari!!s 7T(ird ,art" Access). In t(is e!!ort t(e directi#e ad1usts access to net*or/ on t(e -asis o! tari!!s pu-'is(ed -e!ore t(e" enter into !orce. A !ourt( o-1ecti#e is t(e protection o! t(e s%a'' and #u'nera-'e consu%ers entit'in) t(e% *it( ri)(ts. A%on) t(e% is t(e ri)(t !or uni#ersa' 3

    Ioannis P. Papanastasopoulos (2009)

    ser#ice and in!or%ation disc'osure in t(eir contracts and -i''s. A !i!t( o-1ecti#e *(ic( is a'so intended to -e ac(ie#ed t(rou)( in!or%ation disc'osure is t(e en#iron%enta' protection. T(e 6irecti#e intents to ac(ie#e t(at o-1ecti#e -" settin) in!or%ation disc'osure o-'i)ations concernin) t(e ener)" sources used !or t(e production o! t(e e'ectricit" used and t(e en#iron%enta' i%pact o! t(at production. 7Second E'ectricit" 6irecti#e +ecita's 1B2) A 'ot o! in/ (as -een spi't and a 'ot o! (air (as -een sp'it on (o* co%petition can -e e!!ecti#e'" introduced in t(e supp'" %ar/et. T(e c(a''en)es con!ronted -" t(e re)u'ators are neit(er !e* nor eas" to o#erco%e. Co%petition is e:pected to *or/ on consu%ers? interest. It (as t(ou)( to -e esta-'is(ed -e!ore(and. T(e natura' %onopo'" Cener)" %ar/et re)u'ationD (as no* c(an)ed to -eco%e Cre)u'ation !or co%petitionD. Ne* t"pes o! re)u'ator" instru%ents are e%p'o"ed to !aci'itate t(e pro%isin) co%petition and (e'p t(e consu%ers to en1o" -etter prices in t(eir e'ectricit" -i''s. Consu%ers are e:pected to -ene!it in t(eir e'ectricit" contract @ua'it" too. T(e co%petiti#e process !unctions as a !or% o! natura' protection to e'ectricit" consu%ers.

    Fue' 0eneration

    Trans%ission

    6istri-ution

    E(o'esa'e %ar/et

    +etai'

    Mar/et

    7s%a'' consu%er contracts)

    Figure : This pro!ect focuses on the retail mar"et and specifically on the small #usiness and household consumers electricity contracts $Competitive Elements of the %ndustry in &hade'(

    8nder t(e co%petiti#e pressure supp'" !ir%s de#e'op di#erse inno#ati#e t"pes o! contracts !airer and %ore e!!icient. In t(is *a" %ore added #a'ue can -e created !ro% t(e re!or%. 8nder a co%petiti#e en#iron%ent consu%ers are e:pected to en1o" si)ni!icant'" en(anced contract @ua'it". For t(is to (appen t(ou)( t(ree assu%ptions %ust (o'd at 'east to so%e e:tendF !or a %ar/et to -e ,areto e!!icient in a )enera' e@ui'i-riu% co%p'ete %ar/ets !or a'' co%%odities s(ou'd e:ist actors in t(e %ar/et s(ou'd not (a#e %ar/et po*er and in!or%ation s(ou'd -e s"%%etric 7B. =er%a'in A. Gat9 +. Cras*e'' 255$ p) 1&). But co%petition does not co%e a'one. T(ere *(ere on'" one option used to e:ist no* opportunit"Bsearc(in)Bs*itc(in)Bcontract si)nin) costs e%er)e and t(e conse@uent in!or%ation as"%%etr" pro-'e%. In rea'it" %ar/ets %a" not e:ist !or so%e )oods 7suc( as contract @ua'it") !or *(ic( t(e consu%ers? *i''in)ness to pa" e:ceeds t(e costs !or t(eir production. Mar/ets %i)(t not e:ist as a resu't o! in!or%ation pro-'e%s and transaction costs in t(e case o! e:terna' e!!ects and pu-'ic )oods. 8nder t(ese circu%stances re)u'ation can a%e'iorate and -rin) c'oser to opti%a' t(e a''ocati#e e!!icienc" o! t(e econo%" 7H. A. den 2

    Ioannis P. Papanastasopoulos (2009)

    =erto) 1... p)22;).1 T(e as"%%etric in!or%ation pro-'e% /no*n as Si)nin) *it(out +eadin) pro-'e% deters t(e contract @ua'it" !ro% -ein) opti%a' and distorts a''ocati#e e!!icienc" in t(e %ar/et. 8n!air and4or ine!!icient ter%s are sti'' !ound in t(e consu%ers contracts consu%ers co%p'ain a-out contract transparenc" and t(e di!!icu't" to o-tain in!or%ation !ro% t(e e'ectricit" contracts a#ai'a-'e in t(e %ar/et. T(us e'ectricit" contract re)u'ation is su))ested. T(e t(esis o! t(is paper is t(at e'ectricit" re)u'ation is i%portant -ut at t(e sa%e ti%e t(e !or% o! re)u'ation %atters as *e''. 6i!!erent !or%s o! contract re)u'ation and consu%er protection can si)ni!icant'" in!'uence t(e ot(er )oa's pursued -" t(e re!or% and especia''" t(e %ar/et inte)ration )oa'. T(us t(is paper e:a%ines: *(et(er re)u'ation is necessar" in re)ards to e'ectricit" consu%er contracts. I! "es o! *(ic( !or% and to *(at e:tent. T(ese @uestions are ans*ered ta/in) into account t(at contract re)u'ation can !unction -ot( as a co%petition cata'"st and as -arrier to %ar/et entr" and e:it !or !orei)n in#estorsBentrants in t(e %e%-er state?s supp'" %ar/et. Fina''" t(e ana'"sis *i'' !ocus on (o* re)u'ation o! e'ectricit" contracts can a!!ect t(e re!or%Is t*o %ain )oa's: co%petition and %ar/et inte)ration to sin)'e European e'ectricit" %ar/et. Section t*o is de#oted in ana'"9in) t(e paper?s %ain concepts. Contract content !airness and e!!icienc" t(e econo%ic approac( to Standard For% Contracts 7SFCs) and t(e Si)nin) *it(out +eadin) pro-'e% 7SE+) are presented. Moreo#er t(e criteria o! contract re)u'ation na%e'" e!!ecti#eness and e!!icienc" are set and de!ined. In Section t(ree t(e European 'e#e' and t(e %e%-er state 'e#e' 'e)is'ationBre)u'ation are introduced and descri-ed %ost'" in re'ation to t(e e'ectricit" consu%er contracts. In section !our t(e contract @ua'it" in %onopo'istic re)i%es t(at *ere do%inant in Europe -e!ore t(e 'i-era'i9ation atte%pt -ut sti'' sur#i#e is ana'"9ed. T(ese %ode's sti'' e:ist in se#era' European countries so t(e ana'"sis is o! practica' #a'ue and not a (istorica' one. Fina''" it is e:a%ined *(et(er t(e ne*'" introduced E'ectricit" re)u'ation can create a %ar/et en#iron%ent in *(ic( e'ectricit" consu%er contracts are o! -etter @ua'it" t(an t(ose o!!ered in t(e %onopo'istic %ar/et structures. A!ter e#a'uatin) t(e -ene!its t(at co%petition *i'' -rin) to e'ectricit" consu%ers in co%parison to t(e t*o %onopo'" %ar/et structures t(e i%p'ications o! t(e co%petiti#e supp'" %ar/et are ana'"9ed in section !our. In t(is section t(e in!or%ation and opportunit" costs and t(e conse@uent in!or%ation as"%%etr" t(at consu%ers !ace are ana'"9ed 7Si)nin)
    1

    H. A. den =erto) 71...) t(ou)( is rat(er re'uctant to*ards t(e ar)u%ent t(at state inter#ention in industr" is -ased 1ust on t(e )rounds o! pu-'ic interest.

    Ioannis P. Papanastasopoulos (2009)

    *it(out +eadin) pro-'e%). T(is ana'"sis is particu'ari9ed in t(e e'ectricit" supp'" %ar/et. A %ode' !or esti%atin) t(e contract readin) and contract o!!er searc(in) ti%e t(at an a#era)e consu%er de#otes is -ui't. Speci!ic data are used in order to e:p'ain *(" in %an" countries consu%ers do not (a#e stron) incenti#es to read /no* and co%pare e'ectricit" contracts? content. T(en t(e re'ation -et*een t(e easiness t(at e'ectricit" consu%ers ac@uire t(e contract in!or%ation and t(e contract @ua'it" is dra!ted. A!ter speci!"in) t(e Si)nin) *it(out +eadin) pro-'e% in e'ectricit" supp'" %ar/et in section !i#e an e#a'uation o! t(e re)u'ator" atte%pt is %ade in section si:. T(e section si: ans*ers t(e researc( @uestion: can t(e ne*'" introduced re)u'ation so'#e t(e %ar/et !ai'ures ana'"9ed in section !i#e so t(at contract @ua'it" *i'' i%pro#e and actua' co%petition *i'' -e esta-'is(ed in an inte)rated European e'ectricit" %ar/et )uaranteein) an ade@uate 'e#e' o! consu%er protection at t(e sa%e ti%e>

    Section 2: Main Concepts, Efficiency and Effecti eness


    In t(e !o''o*in) sections o! t(is paper t(e reader *i'' !re@uent'" encounter t(e ter%s Cun!air contract ter%2D and Cine!!icient contract ter%D. T(us it is i%portant at t(is point to c'ari!" t(e %eanin) o! t(ese t*o concepts as t(e" are used in t(is paper. Bot( concepts Cun!airD and Cine!!icientD are used to descri-e a contractua' ter% t(at is conte%nedF t(e !or%er -" t(e 'a* t(e 'ater -" t(e econo%ic t(eor" and ana'"sis. 8n!air ter%s are dec'ared in#a'id and #oid -" t(e courts -ecause t(e" (urt si)ni!icant'" t(e 'e)iti%ate interests o! t(e one part" o! t(e contract. On t(e ot(er (and ine!!icient ter%s are considered as (ar%!u' !or t(e socia' *e'!are !ro% an econo%ics perspecti#e t(eir o%ittance !ro% contracts is t(ere!ore su))ested. A't(ou)( t(e t*o ter%s are o!ten con!used and used interc(an)ea-'" (ere a %ore stricto sensu approac( o! t(eir %eanin)s is !o''o*ed. Indeed ine!!icient and un!air ter%s are c'ose'" re'ated. Societ" (as adopted 'a*s t(at dec'are un!air contractua' c'auses t(at are a'*a"s or usua''" ine!!icient. T(ere are t(ou)( contract ter%s t(at cou'd -e !ound un!air -" a 1ud)e *it(out t(eir -ein) ine!!icient. At t(e sa%e ti%e t(e net o! 'a* is not spread *ide enou)( to inc'ude a'' t(e ine!!icient ter%s. T(e %ore un!air or ine!!icient c'auses are contained in a contract t(e 'o*er t(e contract @ua'it" is. T(e %ore e!!icient and !air ter%s inc'uded in a contract t(e -etter t(e contract @ua'it" is. T(is paper o!ten dea's *it( t(e contract @ua'it" t(us it is necessar" t(ese t*o notions to -e de!ined. First'" it is e:a%ine *(at an un!air and *(at an ine!!icient ter% is.

    CContract ter%D and Ccontract c'auseD are used (ere interc(an)ea-'"

    Ioannis P. Papanastasopoulos (2009)

    %.& E''iciency and (airness in )onsumer )ontracts


    T(e conte:t o! t(is researc( is a European one. T(ere!ore a European approac( to t(e de!inition o! t(e Cun!air ter%D is )oin) to -e presented. A contractua' ter% contained in a consu%er Standard For% Contract 7SFC) is un!air accordin) to t(e CCounci' 6irecti#e .34134EEC on 8n!air Ter%s in Consu%er ContractsD 7(erea!ter 8n!air Ter%s 6irecti#e) Ji! contrar" to t(e re@uire%ent o! )ood !ait( it causes a si)ni!icant i%-a'ance in t(e partiesI ri)(ts and o-'i)ations arisin) under t(e contract to t(e detri%ent o! t(e consu%er? 3 T(is pro#ision esta-'is(es t*o criteria !or an Cun!air testD o! a ter%. T(e !irst criterion is t(e concept o! C)ood !ait(D. T(e second is t(e concept o! Csi)ni!icant i%-a'anceD in parties? ri)(ts and o-'i)ations. T(ere does not see% to -e an" (ierarc(" -et*een t(e t*o criteria. T(e use o! -ot( t(ou)( %a/es t(e directi#e?s pro#ision and t(us t(e Cun!air testD !or a ter% co%p'icated. T(o%as ,!ei!!er and Martin E-ers sc(o'ars %e%-ers o! t(e Ac@uis +esearc( 0roup su))est t(at t(e C)ood !ait(D criterion is %ore si%p'e and eas" to use. T(e" a'so !ind t(e Csi)ni!icant i%-a'anceD criterion co%p'icated in use and o!ten irre'e#ant to t(e !airness o! t(e ru'e 7T. ,!ei!!er M. E-ers 255& p) 233). Fairness is a concept t(at (as a stron) 'e)a' c(aracter and pro-a-'" is pre!erred -" 'a*"ers t(at are %ore !a%i'iari9ed *it( t(e princip'e o! )ood !ait(. On t(e ot(er (and econo%ic ana'"sts 'i/e 0. 6e 0eest see t(e Csi)ni!icant i%-a'anceD concept as a %eans !or econo%ics to enter t(e court 1ud)%ent *(en en!orcin) t(e 6irecti#e?s pro#isions 70. 6e 0eest 2552 p) 12). T(e sa%e sc(o'ar considers t(e princip'e o! )ood !ait( can -e a'so used in order to !or-id ine!!icient c'oses to -e dra!ted or en!orced e.). Cper!or%ance in )ood !ait(D 70. 6e 0eest 1..2 p) 213B21;).

    2.1.1 Contractual Clauses and Efficiency


    As *e sa* a-o#e in t(e sa%e concepts 'e)a' sc(o'ars see !airness *(i'e econo%ists and 'a* and econo%ics sc(o'ars see e!!icienc". Sc(o'ars 'i/e Gap'o* and S(a#e'' 72553) (a#e stressed t(e need !or socia' po'icies to -e oriented to indi#idua' *e''B-ein) *it(out *ei)(tin) independent'" notions 'i/e !airness 7L. Gap'o* and S. S(a#e'' 2553). =at9is 7255;) speci!ica''" points out t(at courts s(ou'd !ocus on econo%ic ana'"sis and not in an a-stract concept o! !airness and %ora'it" *(en in#esti)atin) a contract?s content or e'se consu%ers? *e'!are %a" -e (ar%ed 7A. N. =at9is 255; p) 2;). ine!!icient ter% is.
    3

    =ere is i%portant to present *(at an

    Counci' 6irecti#e .34134EEC on 8n!air Ter%s in Consu%er Contracts artic'e 3 71)

    &

    Ioannis P. Papanastasopoulos (2009)

    First'" a contract ter% is ine!!icient *(en it destro"s %ore *ea't( o! one part" t(at it creates !or t(e ot(er. As a resu't t(e societ" as a tota' is *orse o!! e.). a c'ause in a (ouse renta' contract t(at )i#es t(e 'and o*ner t(e ri)(t to e#ict t(e tenants i! t(e" are t*o da"s 'ate in pa"in) t(e rent. Second'" a contract ter% is ine!!icient i! t(e e:ecution o! t(e contract -ene!its 'ess t(e contractin) parties t(an it (urts a t(ird part" or t(e societ" as a tota' 7,. Kan Ei1c/ H. T(eeu*es 2555 p) ;5B;2). T(ird'" a contractua' ter% is considered ine!!icient *(en it is pure'" redistri-uti#e. In t(e 'ater case t(e pro-'e% o! ad#erse se'ection is e:pected to occur 7especia''" in non %onopo'i9ed %ar/ets) and !urt(er%ore nonB*e'!areBproducin) dra!tin) in#est%ents are done -" t(e contract dra!ters 70. 6e 0eest 2552 p) 3B2). T(e cate)ories o! ine!!icient ter%s a-o#e are not e:(austi#e -ut t(e" s(o* *(at an ine!!icient ter% isF a ter% t(at t(e -ene!it t(at it -rin)s to t(e dra!tin) part" is 'ess t(an t(e cost it causes to consu%ers 7A. N. =at9is 255; p) 2&). A'' o! t(e% are destro"in) %ore #a'ue t(an t(e" create t(us t(e" cause a ,areto deterioration in t(e %ar/et and t(e econo%". In )enera' a contract ter% is ine!!icient i! t(e -ene!its it produces !or t(e societ" in ter%s o! cooperation surp'us is 'ess t(at t(e (ar% t(at it in!'icts to t(e socia' *e'!are direct'" 7t(e !irst case and second t(e case) or indirect'" 7t(e 'ater case). A contract is ine!!icient *(en it contains %an" ine!!icient contract c'oses. T(e %ore ine!!icient c'auses it contains t(e 'ess e!!icient t(e contract is. T(e %ore ine!!icient a contract is t(e %ore its @ua'it" deteriorates.

    Figure ): Economic *nalysis of +a, *ims to a Coincidence of the -otions .nfair and %nefficient

    Ioannis P. Papanastasopoulos (2009)

    T(is paper dea's *it( un!air and ine!!icient e'ectricit" consu%er contracts and t(eir re)u'ation. It is t(ere!ore necessar" to de!ine t(e consu%er notion as it is used in (ere. T(e 8n!air Ter%s 6irecti#e 78T6) in t(e artic'e 27-) reser#es !or non -usiness consu%ers 7residentia' in t(e e'ectricit" case) t(e specia' protection o! t(e artic'e 3 o! t(e sa%e 6irecti#e. Business consu%ers are not )i#en an" specia' protection !ro% un!air ter%s in SFCs. Bot( t(ese consu%er cate)ories (a#e no po*er o#er t(e content o! t(e contracts and t(us can not ne)otiate an indi#idua' a)ree%ent. More o#er t(e" are o! t(e sa%e sop(istication and !ace t(e sa%e in!or%ation pro-'e%s 7A. +o-inson 2553 p) &). T(is is pro-a-'" t(e reason *(" s%a'' -usiness consu%ers are distin)uis(ed !ro% t(e rest o! -usiness consu%ers in t(e C25534324EC 6irecti#e Concernin) Co%%on +u'es !or t(e Interna' Mar/et in E'ectricit"D. S%a'' enterprises en1o" in re)ards to so%e aspects t(e sa%e 'e#e' o! protection *it( residentia' e'ectricit" consu%ers.2 T(ere!ore !or t(is paper Cconsu%ersD are t(e residentia' and s%a'' -usiness consu%ers due to t(ere #u'nera-i'it" to un!air and ine!!icient c'auses in e'ectricit" SFCs and t(eir si%i'ar status in t(e %ar/et !ro% an econo%ic perspecti#e.

    2.1.2 Fairness, Efficiency and the Signing without Reading Problem in SFC
    T(e o#er*(e'%in) %a1orit" o! t(e *ritten contracts are standardi9ed. Most o! t(e ter%s and !re@uent'" a'' t(e ter%s contained in t(e% are o!!ered to t(e consu%er on a ta/eBitBorB 'ea#eBit -asis. T(e consu%er can not ne)otiate t(e% and (as t*o options: eit(er to si)n t(e contract eit(er not. A di!!erentiation -et*een 'e)a' and t(e econo%ic sc(o'ars is a'so noticea-'e in t(eir approac( to SFC. Le)a' sc(o'ars as Friedric( Gess'er and T. +a/o!! 'in/ed t(is /ind o! o!!ers *it( -ar)ainin) po*er deri#ed -" %ar/et po*er. For Gess'er t(e e:istence o! a standardi9ed contract o!!ered to t(e consu%ers in a ta/eBitBorB'i#eBit -asis is a si)n o! t(e e:istence o! a %onopo'". T(e %onopo'ist accordin) to t(is ana'"sis a-uses its %ar/et po*er -" o-'i)in) t(e consu%er *(o -" %onopo'" de!inition does not (a#e an" )ood a'ternati#es to enter a standardi9ed contract 7F. Gess'er 1.23). T(is contract *i'' -e si)ned e#en i! t(e ter%s are -ene!itin) t(e %onopo'ist in t(e e:pense o! t(e consu%er. T(is #ie* o! %onopo'" Standard For% Contracts 7SFCs) is sti'' popu'ar a%on) 'a*"ers 7A. Gat9 1..; p)2). Man" 'e)a' sc(o'ars sti'' toda" re)ard t(e SFCs *it( a%-i#a'ence. Specia' concerns are rose in respect to t(e parties? autono%" 7B. =er%a'in A. Gat9 +. Cras*e'' 255$ p).2).
    2

    25534324EC 6irecti#e o! t(e European ,ar'ia%ent and o! t(e Counci' Concernin) Co%%on +u'es !or t(e Interna' Mar/et in E'ectricit" 1. 22 artic'e 373) artic'e 2;73)

    Ioannis P. Papanastasopoulos (2009)

    An Economic *iew on Standard (orm )ontracts T(e econo%ic ana'"sis t(ou)( does not see% to support t(is ar)u%ent. Nu%erous La* and Econo%ics sc(o'ars 'i/e ,osner 71.&. 1..2) 6e0eest 72552) Sc(*art9 71.&&) Cooter and 8'en 7255;) (a#e pointed out t(at t(e reason t(at a consu%er *i'' si)n an ine!!icient -ad @ua'it" contract t(at -ene!its t(e dra!terBse''er is %ost'" in!or%ation as"%%etr" rat(er t(an t(e -ar)ainin) po*er o! t(e se''er. Consu%ers? ti%e is a scarce resource. Man" o! t(e% *i'' a#oid readin) e#a'uatin) and si)nin) t(e -est contract in t(e %ar/et -ecause t(at in#o'#es opportunit" costs. T(us t(e" are si)nin) contracts t(at do not read or understand. Supp'iers -ein) rationa' and se'!Binterested add ine!!icient c'auses in t(e contracts t(e" dra!t in order to -ene!it !ro% t(is in!or%ation as"%%etr". T(ere!ore consu%ers !ind t(e%se'#es -ound in ine!!icient and4or un!air contracts t(at (a#e ne#er read or understood. I! a'' t(e consu%ers *ou'd read t(e contracts t(e" cou'd opt !or a -etter contract o!!er. T(ere!ore consu%er t(e%se'#es can re)u'ate t(e contract content and i%pro#e t(e contract @ua'it". In rea'it" t(ou)( t(is is not possi-'e. On'" a !raction o! consu%er *i'' de#ote ade@uate ti%e in readin) t(e contracts in t(e %ar/et. Conse@uent'" t(e supp'iers can sti'' ta/e ad#anta)e o! t(e consu%ers t(at do no read t(e contracts 70. 6e0eest 2552 pp233 23;B23.). T(e !act t(at t(e contract content is not %onitored -" consu%ers and t(e conse@uent si)nin) *it(out readin) pro-'e% (as an i%pact in contract @ua'it". I! consu%ers did read and did e#a'uate t(e contracts t(e" si)ned supp'iers o! co%petiti#e %ar/ets *ou'd (a#e to -id in contractua' c'auses @ua'it". T(is does not (appenF t(ere!ore t(e @ua'it" is !ar !ro% opti%a'. Consu%ers *(en si)nin) a contract assu%e 7-ecause t(e" do not read it) t(at t(e @ua'it" is not )ood so t(e" are not *i''in) to pa" !or a )ood @ua'it" contract. Conse@uent'" t(ere is no de%and !or @ua'it" contracts and contract @ua'it" deteriorates %ore and %ore 70. 6e0eest 2552 225). T(is as"%%etric in!or%ation pro-'e% is ana'o)ous to t(e p(eno%enon t(at A/er'o! descri-ed as a %ar/et !or 'e%ons !or t(e used car %ar/et in (is in!'uentia' and %u'tiB @uoted artic'e 70. A. A/er'o! 1.&5 pp2;.B2.2). T(e %ain ar)u%ent t(at t(e %onopo'ist does not (a#e incenti#es to add ine!!icient c'auses in (er contracts is t(at under t(e assu%ption t(at s(e acts rationa''" s(e *ou'd pre!er to ta/e ad#anta)e o! (er %ar/etB-ar)ainin) po*er t(rou)( pricin). T(e %onopo'ist is e:pected to dra!t e!!icient non price ter%s in a contract. T(ese ter%s are e:pandin) *(i'e t(e price ter%s are distri-utin) t(e surp'us o! t(e a)ree%ent. It is attracti#e !or t(e %onopo'ist to (a#e e!!icient ter%s in SFCs o!!ered to consu%ers in order to e:pand t(e surp'us and t(en 15

    Ioannis P. Papanastasopoulos (2009)

    o-tain it a'' -" (ars( %onopo'istic pricin) 7+. Cooter and T. 8'en 255; pp352B353). T(is %onopo'ist?s c(oice is %ore attracti#e i! it is ta/en into account t(e !act t(at courts are %ore re'uctant in re#ie*in) t(e price ter%s t(an t(e non price ter%s o! a contract. T(us a %onopo'ist is e:pected to o!!er ter%s t(at are as e!!icient and as responsi#e to consu%ers? de%and !or @ua'it" as in co%petition. B" not pro#idin) attracti#e non price ter%s to consu%ers t(e %onopo'ist is 'osin) a)ree%ents t(at *ou'd (a#e -een done *it( %onopo'" prices 7A. Sc(*art9 1.&& p)15&2). As in!or%ation pro-'e% ine!!icient ter%s in t(e consu%ers? contracts is e:pected to -e %ore se#ere in a %onopo'" or in a co%petiti#e en#iron%ent> ,osner c'ai%s t(at t(e in!or%ationa' pro-'e% is e:pected to -e %i'der in t(e %onopo'" case. Since t(e consu%er in#ests %ore in t(e a)ree%ent 7%onopo'" pricin)) and conse@uent'" is e:pected to -e %ore care!u' o! t(e contract content 7+. ,osner 1..2 pp112B113). T(us ,osner re1ects t(e ar)u%ent t(at in t(e %onopo'" consu%ers do not read t(e contracts since t(ere is no a'ternati#e. Supportin) to t(e #ie* t(at t(e in!or%ationa' pro-'e% cou'd -e e:pected to -e 'ess se#ere in %onopo'" is t(e !act t(at t(ere is on'" one t"pe o! contract in t(e %ar/et and it is c(eaper in ter%s o! searc(in) 7opportunit") costs !or consu%ers to -e in!or%ed a-out its content. T(ere!ore t(e in!or%ation as"%%etr" is e:pected to -e %ore se#ere in t(e co%petition era *(ere consu%er (as to e#a'uate #arious contract o!!ers in 'i%ited ti%e. In addition 6e0eest ar)ues t(at e#en a s%a'' di!!erence in t(e percenta)e 7in %onopo'" and in co%petition) o! t(e consu%ers t(at read t(e contracts *ou'd not %a/e a si)ni!icant di!!erence in t(e contract @ua'it" t(at *ou'd 1usti!" speci!ic re)u'ator" inter#ention 70. 6e0eest 2552 p)221). T(is ana'"sis s(o*s t(at t(e %onopo'ist does not (a#e %ore incenti#es to add ine!!icient ter%s in SFCs t(an a co%petiti#e !ir% (as. It is t(us t(e %onopo'ist?s !irst -est c(oice to e:tract an" %onopo'" rent t(rou)( pricin). I! s(e can do so s(e *i'' o!!er e!!icient non price ter%s 7+. Cooter and T. 8'en 255; p) 353).T(e 'e)a' approac( to un!air4ine!!icient ter%s as a %ar/et po*er i%p'ication is t(us !'a*ed. So !ar !ro% t(e ar)u%ents a-o#e t(e reader sees t(e stron) rese%-'ance -et*een t(e %onopo'" contract @ua'it" ana'"sis and t(e %onopo'" product @ua'it" ana'"sis. Indeed t(e %onopo'ist under t(e assu%ption t(at t(e cost restrains and t(e de%and !or @ua'it" do not c(an)e in di!!erent %ar/et structures is e:pected to pro#ide t(e sa%e productBser#ice @ua'it" as a co%petiti#e !ir% 7A. Sc(*art9 1.&& p)15&2). Fo''o*in) t(e sa%e reasonin) Sc(*art9 ar)ues t(at t(e @ua'it" o! contracts is independent o! t(e %ar/et structure. Sc(*art9 %ain'" -ases t(is ar)u%ent on t(e stron) ana'o)ies -et*een t(e contract @ua'it" and t(e product @ua'it" *(ic( (e !inds #er" stron). 11

    Ioannis P. Papanastasopoulos (2009)

    %.% E''ectiveness and E''iciency o' the Legal and +egulatory (ramewor,
    As t(e researc( @uestion states t(is paper is an atte%pt o! e#a'uatin) t(e re)u'ator" and 'e)a' !ra%e*or/ t(at 'eads to t(e 'i-era'i9ation o! t(e European e'ectricit" %ar/et. T(e %ain criteria !or e#a'uatin) t(e e'ectricit" consu%er contract re)u'ation are its e!!ecti#eness and its e!!icienc". Ne#ert(e'ess -ot( e!!icienc" and e!!ecti#eness are too )enera' and #a)ue to -e direct'" app'ica-'e as a test. A re)u'ation can -e e#a'uated in re'ation to its e!!ecti#eness and e!!icienc" !ro% #arious aspects. Conse@uent'" a speci!ication o! t(e notions e!!ecti#eness and e!!icienc" is necessar". T(ese ter%s are t(e criteria t(at are used in t(is paper in an e!!ort to 1ud)e *(et(er t(e re)u'ator" atte%pt in re'ation to t(e consu%ers? contracts is a C)oodD one. T(us in t(e proceedin) su-section t(e -enc(%ar/s used are )oin) to -e de#e'oped and t(e test used in t(is paper is -ui't.

    2.2.1 Effectiveness and Efficiency as Criteria


    It is use!u' to start -" )i#in) a set o! criteria t(at can -e used in an atte%pt to e:a%ine *(et(er a re)u'ation is )ood. Ba'd*in and Ca#e in t(eir (and-oo/ C8nderstandin) +e)u'ationD *(ic( is !ocused in a %u'tidiscip'inar" ana'"sis o! t(e %odern uti'it" re)u'ation out'ine t(e %eans o! identi!"in) C)oodD re)u'ation. 3 T(e criteria set -" t(ere are %ost co%pre(ensi#e. T(e aut(ors do not !ocus so'e'" on an econo%ic e#a'uation o! re)u'ation -ut t(e" !o''o* a %u'tidiscip'inar" approac(. T(e !irst criterion t(e" set !or a re)u'ation to -e C)oodD is *(et(er it is aut(ori9ed -" t(e par'ia%ent B t(e para%ount o! de%ocrac" -" a 'e)is'ati#e %andate 7Ba'd*in and Ca#e 1... p)&;). T(e second criterion is t(e de)ree o! t(e accounta-i'it" o! t(e re)u'ator t(at sets t(e re)u'ation. A re)u'ator accounta-'e !or (is action is contro''ed -" de%ocratic institutions in re)ard to (is actionsBre)u'ations 7+. Ba'd*in M. Ca#e 1... p)&.). T(e t(ird criterion is *(et(er t(e re)u'ation *as adopted t(rou)( a procedure t(at can -e #ie*ed as due. 6ue can -e a re)u'ation %a/in) procedure t(at is !air transparent and accessi-'e 7+. Ba'd*in M. Ca#e 1... p)&.). T(e !ourt( criterion is *(et(er t(e re)u'ator possesses t(e re'e#ant e:pertise. T(is %eans t(at t(e re)u'ation is an output o! an e:pert 1ud)%ent 7+. Ba'd*in M. Ca#e 1... p);5).

    T(e ter% C)ood re)u'ationD is *ide'" used in 8G. T(ere t(e 8G Better +e)u'ation Tas/ Force out'ined a set o! !i#e criteriaB C,rincip'es !or 0ood +e)u'ationD. T(ese !i#e princip'es na%e'" Transparenc" Accounta-i'it" ,roportiona'it" Consistenc" and Tar)etin) are c'ose'" re'ated to t(e set o! criteria t(at Ba'd*in and Ca#e 71...) descri-e 78GB+TF 1..&).

    12

    Ioannis P. Papanastasopoulos (2009)

    T(e !i!t( and t(e 'ast criterion is a test *(et(er t(e re)u'ation is an e!!icient one. T(e re)u'ation adopted can -e e!!icient in t*o *a"s. First'" it can -e e!!icient -ecause it ac(ie#es t(e %andated o-1ecti#es *it( t(e 'east cost. Second'" it can -e dee%ed as e!!icient -ecause it resu'ts to an e!!icient outco%e in t(e industr". In t(e 'ater case t(e outco%e is an e!!icient one -ecause it is considered as suc( -" criteria contained in t(e %andate. Ba'd*in and Ca#e distin)uis( t(e re)u'ator" e!!icienc" !ro% t(e re)u'ator" e!!ecti#eness. O-1ecti#es are ac(ie#ed -" t(e e!!icient re)u'ation 7in t(e !irst sense) in t(e 'east cost. T(e e!!ecti#e re)u'ation ac(ie#es t(e o-1ecti#es -" -rin)in) in practice t(e actua' %andated desired resu'ts no %atter t(e cost 7Ba'd*in and Ca#e 1... p);1). T(e second t(ird and !ourt( criteria re!er %ost'" to t(e re)u'ator" aut(orit" and t(e re)u'ator" process *(i'e t(e !irst and t(e !i!t( na%e'" t(e C'e)is'ati#e %andateD and Ce!!icienc"Be!!ecti#enessD are %ost'" re'ated to t(e re)u'ator" outco%e in t(e re)u'ated industr". As pointed out a-o#e t(is paper is )oin) to !ocus %ost'" in t(e e!!icienc" and e!!ecti#eness o! t(e e'ectricit" consu%er contracts re)u'ation. T(is is not -ecause t(e ot(er aspects o! t(e )ood re)u'ation test are considered 'ess i%portant. A'' t(e criteria are treated as e@ua' -" acade%ics and internationa' institutions and t(ere is no (ierarc(ica' re'ations(ip -et*een t(e%.$ T(e t(ree criteria t(at re!er to t(e re)u'ator" aut(orit" or t(e re)u'ator" process itse'! 7accounta-i'it" transparenc"Bdue process and e:pertise) are t(e%se'#es rat(er i%portant re@uire%ents !or a )ood re)u'ation. Ne#ert(e'ess t(is paper re!rains !ro% ana'"9in) t(ese aspects o! t(e European and %e%-er state 'e#e' re)u'ationB'e)is'ation s"ste%atica''". T(e reasons !or touc(in) t(ese criteria coincidenta''" and *(en dee%ed necessar" are t*o!o'd. First'" in re)ard to t(e European 'e#e' 'e)is'ator" and re)u'ator" processes and institutions a 'ot o! in/ (as -een spi't on e#a'uatin) t(eir *ea/nesses and stren)t(s in re'ation to transparenc" accounta-i'it" and e:pertise issues. T(is criticis% is not sector speci!ic in t(e sense t(at it does not re!er on'" to t(e e'ectricit" 'i-era'i9ation atte%pt -ut concerns e#er" re)u'ator" e!!ort o! E8 institutions. T(us t(e European 'e#e' 'e)is'ation and re)u'ation in e'ectricit" supp'" %ar/et is e:pected to (a#e t(e sa%e ad#anta)es and disad#anta)es in ter%s o! transparenc" and accounta-i'it" t(at e#er" European re)u'ator" atte%pt (as. Conse@uent'" -ein) o! %ore )enera' interest and scope t(ese t(ree criteria do not particu'ar'" concern t(e European 'e#e' e'ectricit" contracts re)u'ation.

    For an e:a%p'e o! t(e e@ua' *ei)(t o! t(ese criteria in t(e e#a'uation o! t(e e'ectricit" uti'ities industries and #arious sets o! criteria see Stern H. and Cu--in H. 72553) Regulatory Effectiveness: The %mpact of Regulation and Regulatory /overnance *rrangements on Electricity %ndustry 0utcomes p)1$

    13

    Ioannis P. Papanastasopoulos (2009)

    In respect to t(e %e%-er state 'e#e' and t(e t(ree criteria t(at re!er to t(e re)u'ator" aut(orities and process t(e approac( is t(e sa%e. A't(ou)( t(e" are %ost i%portant in an atte%pt to e#a'uate a %e%-er states re)u'ator" !ra%e*or/ as a C)oodD one t(e tas/ to (a#e suc( an o#er#ie* on t(e transparenc" o! t(e re)u'ator" process t(e accounta-i'it" %ec(anis%s and t(e e:pertise o! eac( %e%-er state?s re)u'ator is an e:tre%e'" di!!icu't tas/ and is %ore suita-'e as a su-1ect !or a -oo/ o! co%parati#e studies.

    2.2.2

    oals and !b"ectives as Criteria

    T(e aspects o! t(e re)u'ator" @ua'it" t(at are %ain'" discussed (ere are t(e e!!ecti#eness o! t(e re)u'ation in re'ation to t(e %andated o-1ecti#es and t(e e!!icienc" o! t(e re)u'ator" outco%e in t(e industr". T(e !irst step t(us is to detect *(ic( are t(e %andated o-1ecti#es in t(e European 'e#e' re)u'ationB'e)is'ation. Stern and Cu--in 72553) in a re#ie* o! t(e -enc(%ar/s t(at can -e app'ied !or e#a'uatin) e'ectricit" uti'ities re)u'ation out'ine t(e %ain o-1ecti#es o! e'ectricit" industr" re)u'ation in de#e'oped countries. T(e" pro#ide se#en %a1or o-1ecti#es t(at are co%%on in e#er" de#e'oped countr": e!!icienc" and a%e'ioration o! ser#ice @ua'it" reduction o! operatin) and in#est%ent costs co%petiti#e prices reasona-'e rate o! return !or t(e natura' %onopo'" e'e%ents 7)rid distri-ution) co%petition po'ic" )oa's and deterrence o! %ar/et a-use -" incu%-ents reduce e:cess capacit" %ar)ins uni#ersa' ser#ice o-'i)ation 7supp'iers o! 'ast resort) 7Stern H. and Cu--in H. 2553 p2&). O! t(ese t(e co%petition o-1ecti#e 7price and non price) and t(e deterrence o! %ar/et a-use are re'ated to t(e supp'" %ar/et. It is i%portant to e:a%ine (o* t(ese o-1ecti#es are speci!ied in t(e te:t o! t(e European 'e)is'ationBre)u'ation. Indeed t(e European e'ectricit" re)u'ation )oa's and o-1ecti#es are si%i'ar to t(ose t(at Stern and Cu--in pro#ide. As %entioned in t(e introduction co%petition in t(e co%petiti#e e'e%ents o! t(e industr" na%e'" )eneration and supp'" is one o! t(e )oa's o! t(e re)u'ator" re!or%. A )oa' t(at is not %entioned -" Stern and Cu--in -ut is set -" t(e European re)u'ator" atte%pt is %ar/et inte)ration. T(e sin)'e open %ar/et (as a'*a"s -een t(e %a1or !oundation o! European Co%%unities and 'ater E8. Mar/et inte)ration is ta/en account in e#er" European 'e#e' re)u'ator" atte%pt. T(e recent "ears t(ou)( t(e European co%petition po'ic" is in transition and %ar/et inte)ration is *ei)(ted 'ess in re'ation to )ood %ar/et per!or%ance and consu%er *e'!are. Consu%ers? *e'!are t(rou)( e!!ecti#e co%petition in an open %ar/et is )ainin) )round %ore and %ore as a )oa' 7S. Martin 255& p)1).

    12

    Ioannis P. Papanastasopoulos (2009)

    Ne#ert(e'ess %ar/et inte)ration can -e sti'' !ound in t(e European 'e)is'ation i%p'icit'" or e:p'icit'" stated.& T(is e:p'ains *(" *e !ind it as European e'ectricit" re!or%?s )oa' a't(ou)( it is not adopted as suc( in 8S?s or in t(e E8 %e%-er states? po'ic". O! t(e !i#e o-1ecti#es a!ore%entioned in t(e introduction 7Second E'ectricit" 6irecti#e 2553 +ecita' 1B 2) t(e second 7deterrence o! %ar/et do%inance and introduction o! co%petition) and t(e !ourt( 7consu%er protection t(rou)( in!or%ation disc'osure and uni#ersa' ser#ice o-'i)ation) are re'e#ant to t(e supp'" %ar/et and to t(e e'ectricit" consu%er contracts. T(e 'ater o-1ecti#es t(at speci!" t(e %ore -road European co%petition po'ic" )oa's are a'so co%%on %ain o-1ecti#es o! e'ectricit" industr" re)u'ation in an" de#e'oped countr". A!ter t(e criteria ana'"sis it is possi-'e to present t(e test app'ied in t(is paper: The #enchmar"s of evaluation1 the goals of the regulatory reform and the o#!ectives set #y the directive are analy2ed' * theoretical frame,or"3test has #een #uilt' Therefore the criteria of evaluation in this paper are: a' %s the European and the mem#er state level regulation of electricity consumer contracts effective in achieving mar"et integration1 competition and consumer protection in the retail mar"et4 #' *re the results in the mar"et efficient ta"ing into account the o#!ectives set in the European level legislation4 The evaluation is organi2ed #y goal3o#!ective in su#section 5'

    Section !: Le"a# and $e"u#atory Fra%e&or'


    T(is researc( !ocuses %ain'" on t(e 'e)is'ation and re)u'ation t(at concerns t(e ener)" consu%er protection and contracts. T(ere are #arious European directi#esBre)u'ations t(at )o#ern t(e !ie'd o! e'ectricit" supp'" %ar/et and speci!ica''" t(e e'ectricit" consu%er contracts. T(e *a" t(ese consu%er protection pro#isions *ere i%p'e%ented di!!ers *ide'" in eac( %e%-er state. T(us t(e e:istin) 'a* and re)u'ation in eac( state is to so%e e:tend di!!erentiated -" t(e ot(er %e%-er states dependin) on t(e interpretation %ade t(e 6irecti#es pro#isions. In t(is section t(e pro#isions o! t(e directi#es are ana'"9ed and t(e re)u'ator" !ra%e*or/ is presented. E!!ort is %ade to -ac/ up t(e ana'"sis o! t(e re)u'ator"

    &

    Artic'e ;1 para)rap( 3 o! t(e European Treat": CT(e o-1ecti#e o! Artic'e ;1 is to protect co%petition on t(e %ar/et as a %eans o! en(ancin) consu%er *e'!are and o! ensurin) an e!!icient a''ocation o! resources. Co%petition and %ar/et inte)ration ser#e t(ese endsLD

    13

    Ioannis P. Papanastasopoulos (2009)

    !ra%e*or/ and t(e speci!ic %e%-er state 'e#e' re)u'ator" c(oices *it( co%parati#e e%pirica' data.

    -.& Legislation
    In re)ards to European 'e)is'ation t(ere are se#era' directi#es and re)u'ations t(at are current'" en!orced in ener)" sector. 6etai'ed %easures concernin) consu%er protection can -e !ound in t(e pro#isions o! t(e 32425534EC 6irecti#e Concernin) Co%%on +u'es !or t(e Interna' Mar/et in E'ectricit" 7Second E'ectricit" 6irecti#e) and particu'ar'" in Anne: A. Moreo#er t(e E8 directi#es .34134EEC o! t(e Counci' on un!air ter%s in consu%er contracts and t(e 255342.4EC o! t(e European ,ar'ia%ent and o! t(e Counci' 76irecti#e on 8n!air Co%%ercia' ,ractices) are app'ica-'e. In addition t(e T(ird Ener)" ,ac/a)e 7TE,) 'e)is'ationBre)u'ation and t(e t*o re'e#ant 6irecti#es it introduces 7T(ird E'ectricit" 6irecti#e Ener)" A)enc" 6irecti#e) t(at *i'' -e in !orce -" !a'' 255. a%end and e%po*er to so%e e:tend t(e consu%er protection pro#isions o! t(e Second E'ectricit" 6irecti#e.

    #.1.1 $he %&'2((#'EC )irective *Second Electricity )irective+


    T(e Second E'ectricit" 6irecti#e is t(e %ain -od" o! 'e)is'ationBEuropean 'e#e' re)u'ation no* in !orce in t(e e'ectricit" sector. T(e 'i-era'i9ation and restructurin) e!!ort in t(e e'ectricit" sector *as 'aunc(ed in t(e !irst p'ace *it( t(e .$4.24EC 6irecti#e Concernin) Co%%on +u'es !or t(e Interna' Mar/et in E'ectricit" 7First E'ectricit" 6irecti#e). T(is directi#e *as %ain'" !ocusin) on 'e)a' or)ani9ationa' and procedura' issues. It *as a -i) !irst step to*ards t(e 'i-era'i9ation and t(e introduction o! co%petition in t(e sector -ut not su!!icient to ac(ie#e t(ese )oa's *it( success. So ne* 'e)is'ationBre)u'ation (ad to -e adopted and en!orced in order t(e 'i-era'i9ation and restructurin) o! t(e sector to -e success!u'. T(e Second E'ectricit" 6irecti#e -ein) t(e successor o! t(e !irst tried to correct t(e i%per!ections o! its predecessor and %o#e a step !or*ard at t(e sa%e ti%e. In t(is sense t(e Second E'ectricit" 6irecti#e is a %ore deter%ined and detai'ed atte%pt !or 'i-era'i9ation. -.&.&.a .oals and !/ ectives o' the Second Electricity Directive

    1$

    Ioannis P. Papanastasopoulos (2009)

    T(e )oa's and o-1ecti#es o! t(e Second E'ectricit" 6irecti#e (a#e -een so !ar -rie!'" touc(ed in t(e introduction and section t*o. T(e readin) o! t(e 6irecti#e?s recita' s(o*s t(at t(e o-1ecti#es sprin) -" t*o %oti#es. One is to a%e'iorate t(e ine!!iciencies and t(e s(ortco%in)s o-ser#ed in t(e %ar/et under t(e First E'ectricit" 6irecti#e na%e'" tari!!ication access to net*or/ and de!erent de)rees o! openin) issues. T(e ot(er is t(e e!!ort to %o#e a step !or*ard to openness and co%petition in t(e e'ectricit" %ar/et. T(e o-1ecti#es set -" t(e Second E'ectricit" 6irecti#e are se#era' so%e -ein) contradictor" s(o*in) t(e trade o!!s in#o'#ed in t(e e'ectricit" re)u'ation. T(e !irst o-1ecti#e noted is to ensure a 'e#e' p'a"in) !ie'd in )eneration. T(e second is to tac/'e t(e o-stac'es t(at %ar/et do%inance and predator" -e(a#ior set to co%petition in t(e %ar/et. T(e t(ird o-1ecti#e t(at t(e directi#e sets is to ensure non discri%inator" trans%ission and distri-ution tari!!s. A !ourt( o-1ecti#e is t(e protection o! t(e s%a'' and #u'nera-'e consu%ers entit'in) t(e% *it( ri)(ts. A !i!t( t(e en#iron%enta' protection %ost'" t(rou)( %andator" in!or%ation disc'osure concernin) t(e ener)" sources used 7Second E'ectricit" 6irecti#e +ecita's 1B2). T(e o-1ecti#es set speci!" in detai' t(e t(ree -roader E8 po'ic" )oa's in t(e e'ectricit" sector. T(ese are %ar/et inte)ration in a sin)'e interna' %ar/et introduction o! co%petition in t(e e'ectricit" sector #u'nera-'e consu%er protection and sustaina-'e de#e'op%ent t(rou)( t(e use o! rene*a-'e ener)" sources. T(ere are o-#ious trade o!!s in#o'#ed in t(e o-1ecti#es and t(e )oa's set. Mar/et inte)ration %eans stron) panBEuropean %ar/et p'a"ers. At t(e sa%e ti%e t(e co%petition )oa' in t(e retai' and )eneration ser#ices su))ests 'ac/ o! %ar/et do%inance. Moreo#er Consu%er protection and in!or%ation disc'osure (as to -e -a'anced *it( 'o* entr" costs in t(e retai' %ar/et. C(eaper ener)" !or t(e consu%ers (as to -e -a'anced *it( t(e )oa' o! sustaina-'e de#e'op%ent and C)reenD in!or%ation disc'osure. -.&.&./ Speci'ic Signi'icant Provisions T(e C(apter II artic'es 3B3 o! t(e directi#e are de#oted in dra!tin) )enera' ru'es !or t(e or)ani9ation o! t(e sector. At t(e artic'e 3 para)rap(s 1 and 2 sets t(e o-'i)ation o! t(e %e%-er states to i%p'e%ent t(e pro#isions and notions o! t(e directi#e in a non discri%inator" e@ua' transparent and c'ear *a". T(e artic'e continues -" de!inin) and introducin) !or t(e !irst ti%e t(e concept o! t(e uni#ersa' ser#ice in para)rap( 3. ,ara)rap( 2 introduces t(e o-'i)ation o! t(e %e%-er states to adopt consu%er protection %easures in re)ards to t(e transparenc" o! t(eir contractua' ter%s and conditions )enera' in!or%ation and dispute sett'e%ent %ec(anis%s. Moreo#er it sets t(e o-'i)ation to particu'ar'" protect 1&

    Ioannis P. Papanastasopoulos (2009)

    #u'nera-'e and re%ote consu%ers. More detai'ed ru'es and o-'i)ations re'atin) to consu%ers? ri)(ts and protection are 'ocated at t(e Anne: A o! t(e directi#e. T(e para)rap( $ o! t(e sa%e artic'e sets t(e e'ectricit" supp'iers o-'i)ation !or in!or%ation disc'osure to !ina' consu%ers o! t(e ener)" sources used as *e'' as t(eir en#iron%enta' i%pact. Apart !ro% t(e )enera' ru'es !or or)ani9ation o! t(e sector a si)ni!icant nu%-er o! artic'es are de#oted to t(e issue o! un-und'in). 8n-und'in) o! t(e trans%ission and distri-ution s"ste% operators *as an issue o! %a1or dispute durin) t(e consu'tations and t(e ne)otiations o! t(e Second E'ectricit" 6irecti#e. Man" states especia''" t(ose supportin) t(e acce'eration o! t(e e'ectricit" %ar/et openin) to co%petition #i)orous'" supported t(e separation 7un-und'in)) o! t(e no* co%petiti#e e'ectricit" ser#ices 7retai' )eneration) !ro% t(e ser#ices t(at present stron) natura' %onopo'" c(aracteristics 7trans%ission distri-ution). 8n-und'in) o! t(ose ser#ices !ro% t(e distri-ution trans%ission underta/in)s is essentia' condition !or o#erco%in) %ar/et do%inance and -ott'enec/ i%p'ications. Fina''" %e%-er states? a)ree%ent on o*ners(ip separation *as not ac(ie#ed. T(e approac( !ina''" !o''o*ed inc'uded t(e 'e)a' %ana)e%ent and accountin) un-und'in) 7,. 6. Ca%eron 255& pp13;B 13.). T(e 'e)a' un-und'in) consists o! t(e separation o! 6istri-ution Operation and t(e Trans%ission Operation !ro% t(e e'ectricit" ser#ices t(at (a#e -een !u''" opened to co%petition. T(e co%petiti#e acti#ities and t(e natura' %onopo'" acti#ities (a#e to -e per!or%ed -" di!!erent 'e)a' entities. T(e underta/in) t(at pro#ides )eneration or retai' ser#ices (as to -e di!!erent o! t(e one t(at operates t(e trans%ission or distri-ution s"ste%. 8nder t(e Second E'ectricit" 6irecti#e t(ou)( t(ese t*o or %ore underta/in)s can s(are t(e sa%e o*ners. T(e %ana)e%ent un-und'in) is %andated in order to secure t(at t(at t(e decision %a/in) o! di!!erent underta/in)s is done in an independent *a". T(e %ana)e%ent un-und'in) is app'ica-'e to t(e or)ani9ationa' structure and decision %a/in) o! t(e 6istri-ution Operators and t(e Trans%ission Operators since 'e)a' un-und'in) *(ic( is a %ore !or*arded !or% is not %andator" -et*een t(e%. Fina''" t(e account un-und'in) %eans t(at an" inte)rated !ir% (as to /eep separate accounts !or t(e 6istri-ution Operators;. T(e directi#e e:p'icit'" states se#era' ti%es t(at 'e)a' un-und'in) is di!!erent !ro% o*ners(ip un-und'in) 7Second E'ectricit" 6irecti#e +ecita' 7;) 715) art.15 13 1&). A reason *(" o*ners(ip un-und'in) *as not adopted as a %ore drastic !or% o! un-und'in) %a" -e t(e potentia' inconsistenc" o! suc( a so'ution *it( t(e artic'e 2.3 o! t(e E8 treat".
    ;

    T(is option is app'ica-'e on'" to t(e underta/in)s t(at (a#en?t -een 'e)a''" un-und'ed since accountin) un-und'in) is a %ini%u% !or% o! un-und'in). T(ese 6istri-utors are %ain'" t(ose t(at ser#e !e*er t(an 155.555 costu%ers 7,. 6. Ca%eron 255& p125).

    1;

    Ioannis P. Papanastasopoulos (2009)

    Baars%a et a' 7255$) %a/e an e:tended ana'"sis o! t(e possi-i'it" t(at a re)u'ation t(at dea's *it( o*ners(ip un-und'in) o! t(e e'ectricit" underta/in)s is inconsistent *it( t(e E8 treat" 7B. Baars%a et a' 255$ 1&.1B1&.3). -.&.&.c )onsumer Protection" Disclosing Duties and Anne0 A At t(is point is use!u' to !ocus on t(e consu%er protection pro#isions and t(e disc'osin) duties set -" t(e Second E'ectricit" 6irecti#e. It is t(e t(esis o! t(is paper t(at contract re)u'ation consu%er protection %easures in )enera' t(e disc'osure duties and t(e *a" t(e" a!!ect t(e content o! t(e consu%er contracts (as a si)ni!icant i%pact on t(e inte)ration and t(e co%petiti#eness o! t(e European e'ectricit" retai' %ar/et. T(e artic'e 3 and t(e Anne: A is t(e spine o! t(e e'ectricit" consu%er protection 'e)is'ation. T(is does not %ean t(at t(e pro#isions o! t(e 6irecti#e are t(e e:istin) 'a* in t(e !ie'd in e#er" %e%-er state. A't(ou)( t(at t(e !ie'd o! t(e %e%-er state re)u'ation is !ra)%ented t(e pro#isions o! t(e Second E'ectricit" 6irecti#e are an essentia' startin) point. A Second E'ectricit" 6irecti#e?s i%portant e'e%ent is t(e introduction o! t(e uni#ersa' ser#ice as t(e ri)(t o! s%a'' consu%ers to -e supp'ied *it( e'ectricit" in t(e territor" !or reasona-'e prices 7Second E'ectricit" 6irecti#e art. 3 par. 3) In addition s%a'' consu%ers s(ou'd -e a-'e to en1o" a si)ni!icant 'e#e' o! securit" o! supp'" and reasona-'e tari!!s. Anot(er i%portant e'e%ent o! t(e consu%er protection pro#isions o! t(e artic'e 3 and t(e Anne: A is t(at t(ere is an option t(e s%a'' -usiness consu%ers to -e a*arded t(e sa%e ri)(ts and pri#i'e)es *it( t(ose o! t(e (ouse(o'd consu%ers. T(e adoption o! t(is option depends on eac( %e%-er state?s discretion. Speci!ica''" in respect to t(e consu%er contracts t(ose (a#e to -e transparent and to in!or% t(e consu%er a-out #arious issues and !acts. T(e in!or%ation disc'osure duties co#er at 'east t(e identit" and address o! t(e supp'ier t(e ti%e o! initia' connection t(e t"pe and t(e @ua'it" o! t(e ser#ices pro#ided t"pe o! %aintenance o!!ered in!or%ation a-out t(e %aintenance c(ar)es and tari!!s t(e duration and t(e rene*a' o! t(e ser#ices and o! t(e contract t(e e:istence o! an" ri)(t o! *it(dra*a' !ro% t(e contract t(e e:istence o! an" co%pensation !or 'o* @ua'it" and t(e e:istence o! an" dispute reso'ution procedure. Moreo#er consu%ers s(ou'd -e noti!ied in ad#ance !or an" %odi!ication o! t(e contractua' ter%s in ad#ance and s(ou'd (a#e t(e option to *it(dra* i! t(e" do not a)ree. Fina''" t(e" s(a'' not -e c(ar)ed !or c(an)in) supp'ier. T(e Anne: A %easures are to -e en!orced at 'east 1.

    Ioannis P. Papanastasopoulos (2009)

    !or t(e (ouse(o'd consu%ers. T(is i%p'ies t(at s%a'' -usiness consu%ers *i'' en1o" t(e sa%e protection on'" pro#isiona''" and dependin) on t(e %e%-er states discretion.

    #.1.2 $he $hird Energy Pac,age


    T(e Second E'ectricit" 6irecti#e *as a -o'd step !or*ard to t(e 'i-era'isation o! t(e sector. Sti'' so%e i%per!ections in t(e %ar/et *ere persistent. T(e %ain point o! criticis% *as t(e insu!!icient un-und'in) in t(e sector and t(e o-stac'es t(at #ertica''" inte)rated underta/in)s *ere risin) to t(e introduction o! actua' co%petition in t(e e'ectricit" %ar/et. T(us a %ore radica' !or% o! un-und'in) *as desired and 'oo/ed as a so'ution. T(is )oa' a%on) ot(ers *as t(e pursuit o! t(e T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e and Ener)" A)enc" 6irecti#e.. T(e European par'ia%ent *as supportin) t(e adoption o! t(e !u'' o*ners(ip un-und'in). A)ree%ent !or o*ners(ip un-und'in) t(ou)( *as sti'' not reac(ed.

    -.&.%.a 1he three Un/undling !ptions o' the 1hird Energy Pac,age Electricity Directive In t(e T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e t(e o*ners(ip un-und'in) is an option t(e ot(ers -ein)F (andin) in t(e net*or/ operation or /eepin) it -ut -ein) su-1ect o! (ea#" re)u'ation at t(e sa%e ti%e. T(us t(ere are t(ree di!!erent options under t(e TE,. First'" t(e underta/in) can )i#e a*a" t(e a!!i'iated !ir% practicin) t(e co%petiti#e ser#ices to an underta/in) o! di!!erent o*ners(ip. Second'" t(e trans%ission or t(e distri-ution operation can sti'' (a#e co%%on o*ners(ip -ut in t(at case t(e operation and %ana)e%ent o! t(e trans%ission (as to -e (anded o#er to a neutra' part" 7t(e Independent S"ste% Operator). T(e t(ird option !or t(e inte)rated underta/in) is to /eep o*ners(ip and operation o! -ot( acti#ities -ut to -e su-1ect o! (ea#" re)u'ator" inter#ention. T(e second option is !or t(e underta/in) interests e@ui#a'ent to )i#in) a*a" t(e o*ners(ip. T(e t(ird option %i)(t see% attracti#e -ut in#o'#es (u)e co%p'iance costs and a 'ot o! %ana)eria' in!'e:i-i'it". It can t(us -e e:pected t(at in practice %an" #ertica''" inte)rated underta/in)s *i'' opt !or t(e o*ners(ip un-und'in) *it(out -ein) o-'i)ed to. -.&.%./ 1hird Energy Pac,age and )onsumer Protection
    .

    Adopted on its !ina' !or% -" t(e Euro par'ia%ent 22nd o! Apri' 255. and *i'' -e adopted -" t(e %e%-er states in t(e proceedin) %ont(s

    25

    Ioannis P. Papanastasopoulos (2009)

    T(e need !or %ore e!!ecti#e and detai'ed consu%er protection is re!'ected in t(e a%end%ents %ade in re)ards to t(e consu%er protection. T(e consu%ers? interests and protection %easures are in t(e centre o! t(is -ou@uet o! directi#es and 'ot o! e!!ort is %ade to e%po*er consu%ers in t(e ne* co%petiti#e conte:t 7T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e recita's 21.a 21-). T(e artic'e t(ree pro#isions and t(e Anne: A o! t(e Second Ener)" 6irecti#e (a#e -een c(an)ed to so%e e:tend. In t(e respecti#e artic'e o! t(e T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e #u'nera-'e consu%er protection (as -een e:tended so t(at it contains t(e concept o! ener)" po#ert". 7T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e art. 3.3 3.3a). Moreo#er t(e TE,?s pro#ision insists on t(e consu%ers? ri)(t to c(oose a supp'ier re)istered in anot(er %e%-er state and t(e o-'i)ation o! %e%-er states not to discri%inate a)ainst suc( underta/in)s 73.3a). In para)rap( 3.3- t(e TE, adopts %easures t(at !aci'itate supp'ier s*itc(in). A rat(er i%portant addition is t(e o-'i)ation o! t(e %e%-er states to adopt an outBo!B court dispute so'#in) procedure !or consu%er co%p'aints and an independent %ec(anis% B na%e'" consu%er o%-uds%an or consu%ers? -od" B !or e!!icient'" (and'in) *it( t(ese co%p'aints. Furt(er%ore t(e artic'e 3 insists in procedures and *a"s o! in!or%in) consu%ers a-out t(eir ri)(t and options in t(e ne*'" co%petiti#e supp'" %ar/et 7T(ird Ener)" ,ac/a)e E'ectricit" 6irecti#e artic'es 3.$.-a 3.&.- and 3...a). In addition t(e TE, in an atte%pt to deepen cooperation and coordination o! t(e re)u'ator" !ra%e*or/ and t(e re)u'ator" c(oices in t(e European %e%-er states esta-'is(es t(e A)enc" !or t(e Cooperation o! t(e European +e)u'ators 7Ener)" A)enc" 6irecti#e). T(e A)enc" is ca''ed to p'a" t(e ro'e t(at European +e)u'ators 0roup !or E'ectricit" and 0as 7E+0E0) *as p'a"in) unti' no* in t(e sector 7 recita' 3). T(e po*ers and tas/s o! t(e ne* A)enc" are si)ni!icant'" %ore i%portant t(at t(ose o! E+0E0 7Ener)" ,ac/a)e 6irecti#e Esta-'is(in) an A)enc" !or t(e Cooperation o! Ener)" +e)u'ators artic'e 3). Moreo#er in an atte%pt to e%po*er t(e N+As t(e T(ird Ener)" ,ac/a)e stren)t(ens t(eir aut(orit" in t(e consu%er protection !ie'd )i#in) t(e% t(e ro'e o! an acti#e p'a"er. T(e N+As under t(e TE, are responsi-'e !or %onitorin) t(e e!!icienc" and e!!ecti#eness o! t(e %ar/et openin) and co%petition in t(e retai' %ar/et inc'udin) co%p'ains !ro% (ouse(o'd consu%ers and to scrutini9e restricti#eness o! consu%er contracts. At t(e sa%e ti%e t(e" are ca''ed to respect t(e contractua' !reedo% o! t(e parties in re)ards to 'on) ter% and interrupti-'e supp'" contracts on t(e condition t(at t(e" are co%pati-'e *it( t(e European 'a* and E8 po'icies 7T(ird Ener)" ,ac/a)e E'ectricit" 6irecti#e 3$.1.i). T(e" are a'so 21

    Ioannis P. Papanastasopoulos (2009)

    responsi-'e to)et(er *it( ot(er re'e#ant aut(orities to ensure t(at t(e consu%er protection %easures adopted are e!!ecti#e and en!orced in practice 7T(ird Ener)" ,ac/a)e E'ectricit" 6irecti#e 3$.1.1a). Anot(er point t(at is use!u' to -e %entioned -ut not direct'" re!errin) to consu%er protection is t(e TE,?s persistence on re)u'ator" coordination and cooperation. T(ere is 'ar)e scope o! app'ica-i'it" !or t(is re@uire%ent on t(e consu%er protection and t(e consu%er contracts !ie'd 7T(ird Ener)" ,ac/a)e E'ectricit" 6irecti#e art $).

    #.1.# $he -#'1#'EEC Council )irective on .nfair $erms in Consumer Contracts


    Co%petition in t(e retai' ener)" %ar/et is e:pected to -e rat(er -ene!icia' !or t(e ener)" consu%ers. Be!ore t(e introduction o! co%petition t(e ener)" consu%ers (ad no c(oice -ut to re'" in )enera' contract and consu%er protection 'a*. T(eir %ain protection a)ainst t(e un!air c'auses in t(eir e'ectricit" contracts *as t(e 8n!air Ter%s 6irecti#e. T(is -od" o! 'e)is'ationBre)u'ation *as an atte%pt !or (ar%oni9ation o! t(e un!air ter%s re)u'ation in t(e %e%-er states o! t(e European 8nion. T(e 8n!air Ter%s directi#e dec'ares in#a'id t(e c'auses contained in SFCs 7e'ectricit" consu%er contracts are SFCs) on t(e condition t(at t(e" cause si)ni!icant i%-a'ance to t(e ri)(ts and o-'i)ations o! t(e parties to t(e detri%ent o! t(e consu%ers 78n!air Contract Ter%s 6irecti#e art 3.1). T(e directi#e contains a 'ist o! C)re"D c'auses t(at is su))ested t(at cause Csi)ni!icant i%-a'anceD to parties? ri)(ts and o-'i)ations. In %onopo'istic e'ectricit" %ar/et en#iron%ent t(e consu%er 'ac/s o! a'ternati#e contract c(oice. Moreo#er e'ectricit" as ser#ice or co%%odit" is nonBsu-stituta-'e. T(e 6irecti#e?s pro#isions are app'ica-'e on contracts o!!ered -" -ot( State O*ned and pri#ate o*ned enterprises 7+. C(ristou 2553 p)13$). T(us t(e un!air ter% directi#e *as t(e %ain protection t(at consu%ers (ad a)ainst un!air c'auses in e'ectricit" contracts. Besides t(e 'ist o! t(e c'auses an i%portant pro#ision in t(e 8n!air Ter%s 6irecti#e is t(e de!inition o! t(e e'i)i-'e consu%er. T(e 6irecti#e at t(e artic'e 2 para)rap( - de!ines consu%er as Can" natura' person *(o in contracts co#ered -" t(is 6irecti#e is actin) !or purposes *(ic( are outside (is trade -usiness or pro!essionD. T(e directi#e t(us !o''o*s a traditiona' 'e)a' approac( to t(e consu%er notion. Accordin) to t(is pro#ision s%a'' -usiness consu%ers are not e'i)i-'e as Cconsu%ersD and conse@uent'" do not en1o" t(e protection o! t(e 8n!air Ter%s 6irecti#e. As it *as ana'"9ed in Section t*o o! t(is paper t(is approac( is not -ased on econo%ic ana'"sis. T(e #ie* t(at t(e -usiness consu%er (as t(e incenti#es to

    22

    Ioannis P. Papanastasopoulos (2009)

    read and is capa-'e to understand e#er" SFC t(at s(e si)ns it is not s(ared -" econo%ic t(eor" toda" 70. 6e0eest 2552 p)231).

    #.1.& / Concluding Review of the 0egal Framewor,


    T(e Second E'ectricit" 6irecti#e is a -i) step !or*ard in re)ards to t(e e'ectricit" consu%er protection and speci!ica''" t(e e'ectricit" consu%er contracts. A !irst i%portant point is t(e e:tensi#e and detai'ed in!or%ation disc'osure duties in respect to t(e e'ectricit" consu%er contracts 7%ore t(an ten speci!ic duties). T(e e:(austi#e 'ist o! in!or%ation disc'osure duties see%s at !irst si)(t too e:tensi#e and disproportionate as a %easure in re)ard to t(e consu%er protection o-1ecti#e. On t(e ot(er (and *(en it co%es to contract conditions and c'auses t(e Second E'ectricit" 6irecti#e restricts itse'! %ost'" to dec'arations !or transparenc" and in!or%ed c(oice. T(e %e%-er states are o-'i)ed to secure transparenc" and !airness o! contracts -ut speci!ic reco%%endations are not pro#ided. Conse@uent'" eac( %e%-er state (as a )reat discretion on c(oosin) t(e !or% o! re)u'ation i! an" t(at *i'' app'" to e'ectricit" consu%er contracts. A second i%portant point is t(at s%a'' -usiness consu%ers potentia''" en1o" t(e sa%e 'e#e' o! protection and t(e sa%e ri)(ts as t(e (ouse(o'd consu%ers 7art 3.3). T(is option rests t(ou)( on t(e discretion o! eac( %e%-er state. A t(ird point is t(e 'e)a' %ana)eria' and accountin) un-und'in) o! t(e distri-utors and t(e trans%itters !ro% t(e co%petiti#e )eneration and supp'" e'ectricit" ser#ices. In respect to t(e T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e it repeats %ost o! t(e %easures adopted -" t(e Second E'ectricit" 6irecti#e and )oes a step !or*ard at t(e sa%e ti%e. T(e !irst point t(at is stri/in) a-out t(e TE, is t(e persistence on detai'ed e!!ecti#e and e:tensi#e consu%er protection. A second si)ni!icant a%end%ent is t(e stren)t(enin) o! t(e N+As po*ers in t(e e'ectricit" consu%er protection !ie'd ca''in) t(e% to p'a" an acti#e ro'e. T(e N+As a%on) ot(ers are ca''ed to scrutini9e antico%petiti#e practices in contracts and to %onitor contract duration ta/in) into account E8 po'ic". A t(ird ne* addition in co%parison to t(e Second E'ectricit" 6irecti#e is t(e o-'i)ation o! t(e state to set a consu%er -od" or consu%er o%-uds%an responsi-'e !or t(e e!!icient (and'in) o! t(e consu%er co%p'ains. Furt(er%ore t(e T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e sets up a European A)enc" responsi-'e !or t(e N+As? coordination and in )enera' ca''s N+As !or %ore s"ste%atic and inBdept( cooperation in t(e re)u'ator" !ie'd. T(e TE, a'so adopts %easures t(at !aci'itate t(e consu%er s*itc(in) s*i!t'" and !ree o! c(ar)e. Fina''" t(e TE, pro%otes %ore radica' !or%s o! un-und'in) o*ners(ip un-und'in) -ein) one o! t(e%. 23

    Ioannis P. Papanastasopoulos (2009)

    In re)ard to t(e 8n!air Ter%s 6irecti#e t(ree points are i%portant !or t(e !o''o*in) ana'"sis. First'" t(e directi#e is an i%portant too' !or e'ectricit" consu%er protection as it is *ide'" app'ica-'e to t(e e'ectricit" consu%er contracts. Second'" t(e 8T6 strict'" protects consu%ers *it( t(e traditiona' sense. Conse@uent'" s%a'' -usiness nonB(ouse(o'd consu%ers re%ain unprotected. Fina''" a't(ou)( t(is directi#e *as a success!u' step to*ards t(e (ar%oni9ation o! t(e %e%-er states? 'a* and re)u'ation in t(e !ie'd it did not !u''" ac(ie#e its )oa'. T(e #a)ueness o! t(e concept o! Csi)ni!icant i%-a'anceD and t(e indicati#e c(aracter o! t(e c'ause 'ist t(at s(ou'd -e considered #oid *ere t(e %ain reasons *(" t(e %e%-er state re'e#ant 'a*s and re)u'ations re%ained !ra)%ented to a 'ar)e e:tend. As t(e Co%%ission?s proposa' !or a directi#e on consu%er ri)(ts states reco)ni9es t(e 'a*s in %e%-er states concernin) consu%er contracts are sti'' rat(er !ra)%ented. As a resu't supp'iers are sti'' re'uctant in se''in) across t(e -orders -" practicin) a %ar/et entr" and interna' %ar/et co%petition is distorted. T(us t(is !ra)%entation *or/s as a -arrier to interB %e%-er state trade and as a -arrier to entr" in a %e%-er states %ar/et 7Co%%ission ,roposa' !or a Ne* 6irecti#e on Consu%ers? +i)(ts 255; +ecita's $B;).

    -.% Mem/er Sate Level +egulatory (ramewor,


    A European 6irecti#es? c(aracteristic is t(at t(e" 'ea#e state speci!ic re)u'ation o! %ore detai'ed issues to t(e %e%-er states discretion. T(e E'ectricit" 6irecti#es 7First and Second) and to 'ess e:tent t(e T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e re!rain t(e%se'#es !ro% descri-in) in detai' t(e speci!ic %easures t(at need to -e ta/en in re)ard to e'ectricit" consu%er protection. More o#er t(e E'ectricit" 6irecti#es do not speci!ica''" descri-e t(e %e%-er states? institutiona'Bre)u'ator" or 'e)a' !ra%e*or/. Eit( t(e e:ception o! t(e detai'ed 'ist o! supp'iers? in!or%ation disc'osure duties t(e 6irecti#es %ost'" set )oa's 7contract transparenc" !airness) to -e ac(ie#ed *(en it co%es to consu%er protection and e'ectricit" consu%er contracts re)u'ation. T(ere!ore t(e 6irecti#es set a )enera' re)u'ator" and 'e)a' !ra%e*or/ to -e i%p'e%ented -ut e#er" %e%-er state uses di!!erent %eans and processes to ac(ie#e t(e co%%on end. As a resu't eac( %e%-er state (as %ade di!!erent c(oices 'ar)e'" in!'uenced -" particu'ar (istorica' pu-'ic po'ic" traditiona' reasons and di!!erent 'e#e' o! %ar/et openin). Conse@uent'" t(e !ie'd o! e'ectricit" consu%er protection -ot( institutiona' and 'e)a' presents 22

    Ioannis P. Papanastasopoulos (2009)

    a serious !ra)%entation. A't(ou)( t(e )oa's are t(e sa%e consu%er protection B!aci'itation o! co%petition and inte)ration to sin)'e %ar/etB t(e %eans used are di!!erent. Me%-er states (a#e %ade di!!erent c(oices concernin) issues as: *(o re)u'ates e'ectricit" consu%er contracts *(en is t(e re)u'ator" inter#ention to *(ic( e:tend are t(e contracts re)u'ated *(o is responsi-'e !or t(e dispute sett'e%ent are t(ere an" sector speci!ic consu%er protection pro#isions or t(ere is re'iance to )enera' consu%er protection and contract 'a*. Accordin) to t(e European +e)u'ators 0roup !or E'ectricit" and 0as 7E+0E0) 255; +eport t(e !ra)%entation in t(e !ie'd is si)ni!icant. T(e approac(es se'ected -" %e%-er states #ar". Ot(er states so'e'" re'" on )enera' consu%er protection and )enera' contract 'e)is'ation. O!ten sector speci!ic 'e)is'ation is adopted to set %ini%u% re@uire%ents in respect to consu%er contracts and )enera' 'e)is'ation is used 1ust as a -ac/ up. So%e %e%-er states aut(orities c(oose a set o! ter%s t(at (a#e to -e in t(e consu%er contracts and in ot(er %e%-er state industr" speci!ic a)ree%ents -et*een %ar/et participant is used or e#en se'! re)u'ation 7An E+0E0 Best ,ractice ,roposition on Custo%er ,rotection !or ,u-'ic Consu'tation 255; +ecita's 13B1$). 6i!!erent institutiona' and 'e)a' c(oices (a#e di!!erent resu'ts re)ardin) t(e protection t(at t(e consu%ers en1o" in practice. In an e:tensi#e researc( t(e +e)iona' Tec(nica' Center o! +esearc( on European Consu%ption 7255&) stresses up t(e di!!erence in actua' c(oices %ade -" t(e %e%-er states in re)u'atin) t(e e'ectricit" consu%er contracts. T(e di!!erent resu'ts in actua' protection are e:p'ained -" t(e di!!erent c(oices in 'e)is'ation and di!!erent approac(es o! t(e institutions *(en interpretin) t(e ru'es 7dispute sett'e%ent -oards courts o! 1ustice re)u'ator" aut(orities). Moreo#er t(is di!!erentiation is 'ar)e'" e:p'ained -" t(e !act t(at t(e 'i-era'i9ation is sti'' in process and eac( countr" presents a di!!erent 'e#e' o! %ar/et %aturit". For i''ustration t(ree aspects o! e'ectricit" consu%er contracts re)u'ation *i'' -e ana'"9ed (ere: duration o! t(e contracts and ter%ination -" t(e consu%er %andator" contract content and *(ic( ter%s are !ound un!air in eac( %e%-er state 7C T + + C E 255& pp153B15&). For an overvie, of the various institutional and legal choices that the mem#er states made see:
    Ta#le *nnex: &pecific institutional1 legal and regulatory choices made #y mem#er states1 indicative of the segmentation in the sector

    #.2.1 S1ecific Regulatory Choices

    23

    Ioannis P. Papanastasopoulos (2009)

    In respect to t(e duration rene*a' and consu%er ter%ination o! contracts t(e re)u'ator" c(oices #ar". Most o! t(e %e%-erBstates (a#e c(osen to a*ard t(e consu%ers *it( t(e ri)(t to ter%inate t(e contract at *i'' *it( sort notice in ad#ance usua''" -et*een one to t*o %ont(s. In so%e countries t(e consu%er (as to pa" an ear'" ter%ination pena't" !ee i! a !i:ed ter% contract is sti'' #a'id. In %an" %e%-er states consu%ers can not c(an)e i! t(e" are sti'' in de-t to t(eir supp'iers. T(e %e%-er speci!ic re)u'ator" c(oices %a/e e#er" %e%-er state e'ectricit" supp'" a particu'ar re)u'ator" en#iron%ent. T(is !ra)%entation can pro#e a si)ni!icant -arrier to entr" !or !orei)n European supp'iers and !or %ar/et inte)ration in a sin)'e ener)" supp'" %ar/et. For i''ustration o! t(e !ra)%entation in consu%er ri)(t to ter%inate (er e'ectricit" contract see:
    Ta#le ) *nnex: Regulatory choice in consumer right to terminate electricity supply contract and relevant la,s &ources: $C T R R C E1 )6671 pp 683 65( 9 $ER/E/ Report on Customer Protection1 )66:1 pp:)3 :8( 9 $ER/E/ Report on the Customer &,itching Process1 )66:1 pg ;(

    As %entioned a-o#e %an" %e%-er states (a#e c(osen a set o! c'auses t(at (a#e to -e part o! t(e e'ectricit" consu%er contract content. E#en i! t(at approac( is !o''o*ed in re)ard to re)u'atin) contract content eac( %e%-er state c(ooses a di!!erent set o! o-'i)ator" standard c'auses t(at (a#e to -e inc'uded in t(e contracts. Karious t"pes o! in!or%ation duties are set -" re)u'ator" aut(orities. Ot(er states o-'i)e supp'iers to inc'ude as standard c'auses pro#isions o! t(e supp'" code. Moreo#er in %an" %e%-er states t(ere is an o-'i)ation to re!er t"pes o! c(ar)es and tari!!s. T(us a si)ni!icant di!!erentiation o! so'utions c(osen can -e !ound:
    Ta#le 8 *nnex: <andatory regulated contract content &ource: $ER/E/ Report on Customer Protection1 )66:1 pp: 3:)(

    T(e sa%e !ra)%entation is a'so noticea-'e in t(e !ie'd o! un!air ter%s in consu%er contracts. 8n!air ter%s do e:ist in consu%er contracts in co%petiti#e en#iron%ent. As *i'' -e e:p'ained 'ater in section !i#e t(is is %ost'" -ecause o! t(e in(a-it Si)nin) *it(out +eadin) pro-'e% t(at resu'ts !ro% t(e transaction costs t(at e%er)e *it( t(e supp'" %ar/et 'i-era'i9ation. T(e Li-era'i9ation is e:pected to (e'p t(e e'ectricit" consu%ers t(at *i'' (a#e t(e option to c(oose t(e %ost e!!icient and !airer contract in t(e %ar/et. As *i'' -e s(o*n (ere and in section !i#e t(ou)( consu%ers are sti'' con!ronted *it( 'o* @ua'it" supp'" contracts 7C T + + C E 255& pp153B15&).15 In di!!erent %e%-er states di!!erent so'utions (a#e -een )i#en !or t(e sa%e c'auses. 6ue to di!!erent ru'es t(at re)u'ate t(e supp'" contracts and di!!erentiation in 1udicia'
    15

    For contract @ua'it" in co%petition era see %ore in Su-sections 3.2 and 3.3

    2$

    Ioannis P. Papanastasopoulos (2009)

    approac( e#en *(en interpretin) t(e sa%e ru'e (as di!!erentiated resu'ts in actua' protection a)ainst un!air contract c'auses. Conse@uent'" t(e sa%e contract c'auses t(at are !ound a-usi#e in one %e%-er state are !ound #a'id in anot(er %e%-er state. 6i!!erent approac( (as -een !o''o*ed in respect to t(e !airness o! speci!ic contractua' c'auses suc( as uni'atera' consu%er?s co%%it%ent %a)nitude o! t(e reinstitution !or de'a"ed pa"%ent 7interest procedure costs) t(e de%and !or additiona' c(ar)es due to *ron) %eterin) or -i''in) t(e supp'ier?s 'ia-i'it" !or da%a)es due to #o'ta)e #ariation and succession o! supp'iers to t(e contract. T(is !act !urt(er deepens t(e !ra)%entation o! t(e ru'es t(at are actua''" en!orced in e#er" %e%-er state in re)ard to consu%er contracts 7C T + + C E 255& pp153B15&). For a re#ie* o! t(e %e%-er states? speci!ic c(oices in re)ard to e'ectricit" contracts un!air ter%s see: Ta#le = *nnex: +ist of clauses that ,ere handled in differentiated manner in mem#er states'
    &ources: $C T R R C E1 )6671 pp )83 ):( $/ree" Consumer 0m#udsman *nnual Report1 )66;1 pp>83>=(

    #.2.2 Concluding Review of Regulatory Framewor,


    So !ar so%e e'e%ents o! t(e %e%-er states re)u'ator" !ra%e*or/ are stri/in). First'" a't(ou)( co%petition *as introduced in t(e supp'" %ar/et %ost o! t(e %e%-er states dee%ed appropriate to ta/e sector speci!ic %easures !or t(e consu%er contracts. In %ost countries t(e sector speci!ic aut(orities and t(e )o#ern%ent re)u'ate t(e e'ectricit" consu%er contracts? content. In %an" o! t(e% dispute sett'e%ent -oards are set speci!ica''" !or e'ectricit" or ener)". In ot(ers t(e dispute sett'e%ent tas/ is assi)ned to )enera' consu%er -odies or aut(orities. T(e re)u'ation o! t(e e'ectricit" consu%er contracts see%s e:tensi#eBin so%e cases un1usti!ia-'" e:tensi#e. O!ten t(e e: ante appro#a' o! )enera' c'auses approac( *as !o''o*ed. Second'" t(e di!!erentiation o! t(e approac(es !o''o*ed in i%portant issues o! contract re)u'ation 7*(o re)u'ates *(en to *(at e:tent) (ad !ra)%ented resu'ts to t(e actua' protection t(at consu%ers en1o". 6espite t(e co%%on )oa's set -" t(e European 'e)is'ation t(e di!!erences in t(e re)u'ator" !ra%e*or/ and e:istin) 'a* in eac( %e%-er state are si)ni!icant. Fro% t(e European 'e)is'ation and t(e re)u'ator" !ra%e*or/ ana'"sis it see%s t(at *(en it co%es to contract @ua'it" and !airness t(e European 'e#e' 'e)is'atorBre)u'ator and t(e %e%-er state re)u'ators do not so'e'" re'" on co%petition. In section !i#e it is e:a%ined *(et(er t(e European %e%-er state re)u'ators 1usti!ia-'" opted !or sector speci!icB in so%e 2&

    Ioannis P. Papanastasopoulos (2009)

    cases e:tensi#eB re)u'ation !or e'ectricit" contracts. In t(is e!!ort it is a'so i%portant to see *(et(er co%petition -" itse'! can pro#ide t(e e'ectricit" %ar/et *it( e!!icient and !air contracts !or t(e consu%ers. T(us an econo%ic ana'"sis o! t(e e'ectricit" supp'" %ar/et and e'ectricit" contracts particu'ar c(aracteristics is necessar". T(is ana'"sis *i'' (e'p 'ater *(en e#a'uation o! t(e 'e)is'ation and t(e re)u'ator" !ra%e*or/ *i'' -e conducted. In t(e proceedin) section !our an o#er'oo/ o! t(e pre#iousBtoBsupp'"B%ar/etB 'i-era'i9ation %onopo'istic re)i%es is )oin) to -e presented. T(e contract @ua'it" o!!ered to t(e e'ectricit" consu%ers under t(ese re)i%es is )oin) to -e e#a'uated. T(en it *i'' -e e:a%ined *(et(er t(e ne*'" introduced 'e)is'ation and t(e ne*'" adopted re)u'ator" c(oices *i'' so'#e t(e pro-'e%s con!ronted -" t(e consu%ers in t(ese %ar/et structures in re'ation to t(eir contract @ua'it". T(is ana'"sis is dee%ed as i%portant -ecause e'ectricit" price caped pri#ate %onopo'ies and state o*ned enterprises are not p(eno%ena t(at -e'on) to t(e past. Sti'' in %an" %e%-er states e#en t(ou)( t(e 'i-era'i9ation (as -een i%p'e%ented in rea'it" %onopo'ies e:ist. T(is o#er'oo/ *i'' a'so (e'p to present t(e co%petiti#e supp'" %ar/et 'ater in section !i#e as a -etter %ar/et structure t(an t(e %onopo'istic -ut *it( its o*n pro-'e%s and !'a*s.

    Section (: Monopo#istic Mar'et Structures )efore Li)era#i*ation t+at sti## E,ist in European Conte,t
    T(e European e'ectricit" industr" (as a 'on) %onopo'istic tradition. T(e state o*ned e'ectricit" enterprises 7su-section 2.2) and 'ater t(e price caped pri#ate o*ned %onopo'ies 7su-section 2.1) *ere t(e do%inant !or% o! %ar/et structure in t(e !ie'd. In t(e ear'" nineties t(e co%petiti#e %ar/et structure started to e%er)e in countries t(at atte%pted ear'" %ar/et openin)s na%e'" t(e Nordic countries and 8G *(ere t(e ear'" -irds o! e'ectricit" supp'" and )eneration %ar/et 'i-era'i9ation. T(e European 'e#e' 'i-era'i9ation atte%pt -e)an in 1..$ *it( t(e First E'ectricit" 6irecti#e. Sti'' t(e process o! i%p'e%entation o! t(e European po'ic" is in di!!erent 'e#e' in eac( %e%-er state. So%e o! t(e %e%-er states? %ar/ets are sti'' do%inated -" po*er!u' %onopo'ists pri#ate or state o*ned. A't(ou)( t(is section does not see% to direct'" ans*er t(e researc( @uestion t(e ana'"sis o! t(e %onopo'istic re)i%es is not on'" o! a (istorica' #a'ue. T(is section stresses out t(e pro-'e%s t(at e'ectricit" 2;

    Ioannis P. Papanastasopoulos (2009)

    consu%ers *ere and sti'' are !acin) in t(eir contracts pro-'e%s %ost'" re'ated *it( t(e !'a*s o! %onopo'" as a %ar/et structure. Toda" t(e pre#ious %onopo'ists are sti'' do%inant 11 -ut in a 'i-era'i9ed 'e)a' !ra%e*or/. T(e un-und'in) o! t(e supp'" e'e%ents !ro% t(e inte)rated %onopo'ist as *e'' as t(e co%petition o! independent !rin)e !ir%s entrants as *i'' -e ana'"9ed in t(is section is e:pected to p'a" a drastic ro'e to t(e i%pro#e%ent o! t(e contracts o!!ered -" t(ese do%inant 7actua' %onopo'ists in %an" cases) !ir%s 7Su-section 2.3). In #arious %e%-er states %onopo'ies are sti'' an e:istin) %ar/et structure:
    Ta#le : *nnex: %ncum#ents mar"et shares in )667 in 7 mem#er state countries &ource: Eurostat )66> European electricity mar"et indicators

    2.& 1he Price )ap +egulated Electricity )ompany )ase


    An ana'"sis *as presented in section t*o concernin) t(e incenti#es t(at t(e supp'ierB contract dra!ter (as to add un!air and4or ine!!icient ter%s in its contracts. T(e conc'usion *as in su-section 2.1.2 t(at accordin) to t(e econo%ic approac( to t(e issue t(e %onopo'ist is not e:pected to o!!er contracts o! 'o*er @ua'it" t(an a co%petiti#e !ir%. T(is conc'usion t(ou)( is -ased on t(e assu%ption t(at t(e %onopo'ist can e:tract t(e entire surp'us -" (er e:cessi#e pricin). T(us s(e (as incenti#es to o!!er e!!icient product and contract @ua'it" in order to e:pand t(e cooperation surp'us and t(en e:tract it !ro% t(e consu%er. Ne#ert(e'ess t(e %onopo'ists incenti#es are e:pected to c(an)e i! (er a-i'it" !or e:cessi#e pricin) is 'i%ited. In t(is case t(e %onopo'ist cannot e:tract a'' t(e surp'us o! t(e contract and %a" (a#e incenti#es to add ine!!icient non price ter%s in an atte%pt to e:tract %onopo'istic rent !ro% t(e% -" en(ancin) (er contro' on price ter%s 7+. Cooter and T. 8'en 255; p)353). T(e incenti#es t(at t(e %onopo'ist (as to o!!er e!!icient nonBprice contract ter%s are e:pected to -e distorted and -'unted i! s(e cannot price %onopo'istic prices. One case *(ere t(e %onopo'ist *i'' (a#e 'i%itations in e:tractin) consu%ers? surp'us *it( pricin) is t(e price cap re)u'ated %onopo'ist. T(e speci!ic case is not c(osen in rando%. T(e price re)u'ated and speci!ica''" t(e price capped re)u'ated e'ectricit" %onopo'" is one o! t(e e'ectricit" %ar/et structures t(at t(e European consu%er e:perienced durin) t(e 'ast t*o decades.

    &.1.1 $he Price Ca1 2echanism


    11

    T(e" sti'' en1o" a %onopo'istic %ar/et s(are -ut t(eir %onopo'" is not 'e)a''" protected. SO in t(eor" at 'east pri#ate independent !rin)e !ir%s can enter t(e supp'" %ar/ets and co%pete *it( t(e %onopo'ists in o!!ers and contracts.

    2.

    Ioannis P. Papanastasopoulos (2009)

    At t(is point is i%portant to -rie!'" present t(e -asic c(aracteristics o! priceBcap re)u'ation. ,rice cap is a !or% o! incenti#e re)u'ation app'ied in industries *it( natura' %onopo'" c(aracteristics. ,u-'ic uti'ities and speci!ica''" t(e ener)" sector is one o! t(e !ie'ds t(at t(e priceBcap re)u'ator" %ec(anis% (as -een *ide'" app'ied. T(e Britis( re)u'ator *as t(e !irst one to %a/e use o! suc( a re)u'ator" practice since t(e J;5s 7+. Ba'd*in M. Ca#e 1... p)23$). In t(e e'ectricit" sector price cap re)u'ation re@uires t(e e'ectricit" !ir% to e#entua''" reduce t(e a#era)e price o! a /i'o*att per (our so'd to t(e consu%ers -" a preBspeci!ied percenta)e. In order to esti%ate t(is percenta)e t(e re)u'ator initia''" %a/es an esti%ation o! t(e cost reduction t(at t(e e'ectricit" !ir% *i'' ac(ie#e in t(e proceedin) "ears and sets a percenta)e o! annua''" price reduction to consu%er prices. T(e re)u'ator usua''" 'in/s t(is !or%u'a *it( t(e 'e#e' o! in!'ation in order to ta/e into account e:tre%e !'uctuation o! t(e in!'ation. In addition t(e re)u'ator usua''" tries to %a/e sure t(at t(e in#estors *i'' en1o" a rate o! return !or t(eir in#est%ent12 and *ou'd a'so ac@uire an" e!!icienc" )ains ac(ie#ed -" 'o*erin) t(e cost o! t(e !ir% !urt(er t(an t(e predicted percenta)e. T(is procedure is usua''" repeated e#er" !our or !i#e "ears. In t(is *a" t(e re)u'ated e'ectricit" !ir% (as stron) incenti#es to reduce costs t(rou)( e!!icienc" )ains 7+. Ba'd*in M. Ca#e 1... pp22$B232). T(e re)u'ator -" en!orcin) a priceBcap %ec(anis% tries to app'" pressures on t(e re)u'atee t(at %i%ic t(e co%petition pressures. T(us t(is option is !o''o*ed *(ere co%petition is not a#ai'a-'e and t(is is %ost'" t(e case in t(e net*or/ e'e%ents o! t(e e'ectricit" sector suc( as trans%ission and distri-ution ser#ices. In 8G t(is !or% o! re)u'ation *as app'ied to t(e inte)rated +e)iona' E'ectricit" Co%panies 7+. Ba'd*in M. Ca#e 1... p)232).13 ,rice caps *ere set !or -ot( distri-ution and retai' acti#ities o! t(ese co%panies *(o unti' t(e end o! t(e J.5s *(ere inte)rated 7distri-ution p'us retai') re)iona' %onopo'ists 7T. Ha%as- M. ,o''itt 255& p)$1$$)12. T(ese !ir%s *ere responsi-'e since t(eir !or%ation in 1.;. unti' 1..; !or -ot( t(e 'oca' distri-ution o! e'ectricit" and consu%er retai' ser#ices13 inc'udin) sa'es %eterin) and -i''in) 7+. Gunne/e T. Fens 255& p)1.22).

    12 13

    T(at is t(e case in 8G 7+. Ba'd*in M. Ca#e 22$B232) +. Ba'd*in and M. Ca#e p) 232 Ta-'e 12:CT(e %ain price caps current'" operatin) in t(e 8G uti'itiesD 12 A si%i'ar sc(e%e o! re)u'ation (as -een app'ied to t(e re)iona' e'ectricit" supp'iers in T(e Net(er'ands. T(e distri-ution ser#ices are su-1ect to price cap re)u'ation *(i'e t(e co%%ercia' retai' acti#ities (a#e -een su-1ect to o*ners(ip un-und'in) t(at is en!orced unti' Hanuar" 2511. 7+. Gunne/e T. Fens 255& p)1.23). 13 T(e 8G +e)iona' E'ectricit" Co%panies *ere !or%ed under t(e 1.;. E'ectricit" Act unti' 1..; t(e" re)iona''" %onopo'i9ed t(e distri-ution ser#ices and t(e do%estic e'ectricit" supp'". T(e 'ater opened to co%petition in 1..; 7+. Ba'd*in and M. Ca#e 1... p)1.3) E#en a!ter co%petition *as introduced into t(e supp'" ser#ices price caps *ere sti'' app'ied. 7+. Ba'd*in and M. Ca#e 1... p)231)

    35

    Ioannis P. Papanastasopoulos (2009)

    &.1.2 Price Ca1 and 3uality


    As it (as -een a'read" ar)ued t(e !irst -est c(oice o! a %onopo'ist is to e:tract a'' t(e rent possi-'e t(rou)( pricin). T(ere!ore t(e unre)u'ated %onopo'ist does not (a#e incenti#es to deteriorate productBser#ice @ua'it" or contract @ua'it" since s(e can e:tract a'' t(e %onopo'istic rent a#ai'a-'e -" en!orcin) (is -ar)ainin) po*er on t(e pricin) ter%s. I! price capped re)u'ated t(ou)( t(e !ir% *i'' tr" to e:tract rents !ro% non price e'e%ents. Ba'd*in and Ca#e stress out t(at t(e rationa' re)u'atee *(en price capped (as stron) incenti#es to Ccut corners on @ua'it"D 7+. Ba'd*in and M. Ca#e 1... p)231). B" deterioratin) t(e @ua'it" o! ser#ices o!!ered to consu%ers t(e price capped co%pan" can circu%#ent t(e price cap 7+. Ba'd*in and M. Ca#e 1... p)232). I! @ua'it" is de)raded t(e costs o! t(e !ir% *i'' -e 'o*er and t(e !ir% *i'' present !a'se e!!icienc" )ains en1o"in) supernor%a' pro!itsBt(e t"pe o! pro!its t(e price cap *as initia''" set to di%inis(. T(e e:pected deterioration in @ua'it" dro#e t(e Britis( re)u'ator 7OFFE+) 1$ to set strict @ua'it" standards. Ne#ert(e'ess t(e e'ectricit" co%pan" can sti'' Cc(eatD on contract @ua'it" i! t(e price cap is app'ied to retai' ser#ices as *e'' or t(e retai' ser#ices are not separated in accounts !ro% t(e price caped distri-ution ser#ices.

    &.1.# Price Ca1 and Contract 3uality


    As s(o*n su-section 2.1.2 t(e %onopo'ist (as incenti#es to o!!er e!!icient non price contract ter%s. B" doin) t(is t(e %onopo'ist increases t(e captured consu%ers? *i''in)ness to pa" and t(us t(e a)ree%ent surp'us. T(en s(e can e:tract t(e entire surp'us or t(e 'ar)est portion o! it t(rou)( pricin). E(en price capped t(e %onopo'ist does not (a#e t(is option. T(e distortion o! incenti#es is i''ustrated (ere. 2.&.-.a Price )ap and Distortion o' Incentives when +evising a )ontract )lause T(e e'ectricit" %onopo'ist t(at is not price re)u'ated o!!ers a consu%er contract o! @ua'it" C<1D. T(en 'et?s suppose t(at s(e (as to decide *(et(er to c(an)e a ter% CtMD re)ardin) da%a)es 'ia-i'it" !or ne)'i)ence. T(e ter% CtMD is a'read" opti%a''" dra!ted in t(e %onopo'ists atte%pt to e:pand t(e consu%ers? surp'us. So t(e ter% is -ased on econo%ic ana'"sis and opti%a''" -a'ances t(e in#est%ent need to -e %ade in t(e distri-ution net*or/
    1$

    31

    Ioannis P. Papanastasopoulos (2009)

    7ser#ice pro#ided -" t(e inte)rated %onopo'ist) and t(e da%a)es to consu%ers? e'ectrica' de#ices t(at are co#ered in case o! a net*or/ !ai'ure. T(e unre)u'ated %onopo'ist *i'' not in#est in dra!tin) a non opti%a' -ene!icia' !or (er ter% CtD -ecause dra!tin) a ne* ter% %eans dra!tin) e:penses p'us it *i'' 'o*er t(e captured e'ectricit" consu%ers? *i''in)ness to pa". T(e price capped e'ectricit" co%pan" on t(e ot(er (and %a" !ind it pro!ita-'e to add an ine!!icient ter% CtD t(at ad1usts its 'ia-i'it" in a non opti%a' *a" 7e.). no 'ia-i'it" !or ne)'i)ence). B" t(is c(oice t(e re)u'ated co%pan" 'o*ers its 'ia-i'it" e:penses and t(us e:pands t(e di!!erence -et*een t(e price cap and (er costs. T(e co%pan" can not e:tract t(e consu%er surp'us -" e:cessi#e pricin) so it does not (a#e t(e incenti#es t(at t(e unre)u'ated co%pan" (as to e:pand it. T(e @ua'it" o! t(e contract o!!ered -" t(e price capped co%pan" is in!erior to @ua'it" C<1D. Conse@uent'" t(e price capped %onopo'ist is e:pected to c(oose an ine!!icient contract ter% !or t(e consu%ers and !urt(er%ore to %a/e ine!!icient in#est%ents in order to ac(ie#e it. 2.&.-./ Price )ap and Distortion o' Incentives when Dra'ting a 3ew )ontract )lause A second e:a%p'e is used !or i''ustration. A)ain t(e co%parison *i'' -e -et*een t(e case o! t(e price capped re)u'ated e'ectricit" co%pan" and t(e unre)u'ated case. It is supposed t(at a ne* tec(no'o)ica' de#e'op%ent is ac(ie#ed t(at %a/es a#ai'a-'e a ne* %oda'it" o! pa"%ent o! t(e e'ectricit" -i''s 7e.). pa"%ent t(rou)( internet). T(e unre)u'ated %onopo'ist?s contract o! C<2D @ua'it" does not contain a ter% t(at %a/es t(is %oda'it" o! pa"%ent a#ai'a-'e to consu%ers. But s(e /no*s -ecause s(e is rationa' t(at %a/in) t(is ter% a#ai'a-'e it *i'' sa#e ti%e 7opportunit" cost) and transaction costs !or consu%ers t(at do not (a#e to )o an"%ore to t(e !ir%s pa" des/ or to t(e -an/ to pa" t(eir -i''. Moreo#er s(e /no*s t(at t(e de#e'op%ent o! suc( a pa"%ent sc(e%e in#o'#es in#est%ents suc( as -ui'din) up a data-ase. T(e unre)u'ated %onopo'ist *i'' !ind it pro!ita-'e to add a ter% t(at )i#es t(e option o! internet pa"%ent !or e'ectricit" -i''s. Suc( a c(oice in#o'#es a%on) ot(ers dra!tin) in#est%ents -ut it sa#es %one" !or t(e consu%ers and increases t(eir *i''in)ness to pa" e:pandin) t(eir surp'us. T(e %onopo'ist can t(en e:tract t(e entire surp'us created -" increasin) prices and t(ere!ore s(e can recoup t(e in#est%ent %ade. Be!ore t(e addition o! t(e ne* contract ter% t(e e'ectricit" consu%er *ou'd (a#e to pa" an a%ount o! 15 on a#era)e p'us 1 o! transaction and opportunit" cost. T(e consu%ers are t(ere!ore *i''in) to pa" up to one euro in order not to -ear t(e transactiona' and opportunit" costs. Addin) t(e 32

    Ioannis P. Papanastasopoulos (2009)

    ter% in t(e e'ectricit" consu%ers? contracts t(e co%pan" under)oes e:penses in ter%s o! dra!tin) and in#est%ents in tec(no'o)". As a resu't t(ou)( t(e consu%er does not (a#e to under)o t(e 1 o! transaction and opportunit" cost. T(e !ir% t(en can increase t(e price -" one euroF t(e consu%er *i'' sti'' (a#e to pa" 11 and t(e %onopo'ist *i'' increase (er re#enues -" 1. T(ere!ore t(e unre)u'ated %onopo'ist *i'' o!!er a contract o! @ua'it" C< 2 p'usD addin) t(e e!!icient ter% !or t(e ne* %oda'it" o! pa"%ent. T(is *a" s(e *i'' e:tract t(e 1 euro t(e consu%er is *i''in) to pa" in order to a#oid transactiona' and opportunit" costs t(at *ou'd a'ternati#e'" (ad to under)o. On t(e ot(er (and t(e price capped %onopo'ist is e:pected to (a#e di!!erent incenti#es. In t(is case s(e does not (a#e t(e incenti#es to add a c'ause t(at i%pro#es t(e consu%ers? *i''in)ness to pa" since s(e cannot e:tract t(e surp'us created t(rou)( pricin)F t(e price o! a /i'o*att per (our is re)u'ated and it (as to decrease -" a certain percenta)e. Conse@uent'" t(e price capped e'ectricit" co%pan" *i'' not under)o t(e e!!icient dra!tin) in#est%ent. T(e @ua'it" o! t(e contract t(at t(e price capped re)u'ated co%pan" *i'' o!!er is C< 2D and t(us in!erior to t(e C<2 p'usD t(at t(e unre)u'ated %onopo'ist *ou'd o!!er. Fro% t(e a-o#e *e can conc'ude t(at i! price capped t(e %onopo'ist is e:pected to o!!er contracts o! in!erior @ua'it" t(an t(e unre)u'ated or t(e co%petiti#e !ir%. T(e price capped %onopo'ist *i'' in#est in dra!tin) ine!!icient ter%s suc( as 'i%ited 'ia-i'it" ter%s 7redistri-utiona'B9ero su%). Moreo#er t(e price capped %onopo'ist *i'' re!rain !ro% in#estin) in dra!tin) ne* e!!icient ter%s.1&

    &.1.& $he cause of incentives distortion under Price Ca1


    T(e %ain source o! incenti#e distortion in re'ation to contract @ua'it" o!!ered to consu%ers is t(e co%%on o*ners(ip and t(e co%%on account /eepin) !or t(e distri-ution and t(e retai' ser#ices. 8nder un-und'in) t(e accounts or e#en t(e o*ners(ip o! t(e distri-ution ser#ices and t(e retai' ser#ices are separated. T(e price cap *i'' -e en!orced on'" in t(e distri-ution ser#ices *(ere co%petition does not see% a !easi-'e option "et 7+. Ba'd*in M. Ca#e 1... p)231). T(e retai' ser#ices *i'' -e opened to co%petition. As a resu't t(e contract ter%s *i'' -e o! t(e sa%e @ua'it" as t(ose o!!ered in co%petiti#e %ar/ets. Sti'' t(e contracts *i'' not -e o! t(e -est @ua'it" 1; -ut it is e:pected t(at t(e" *i'' -e o! -etter @ua'it" t(an t(ose o!!ered under t(e price cap re)i%e.
    1& 1;

    T(e %ode' -ui'din) and ana'"sis is inspired -" Oren 0a9a'BA"a' 255& p)122 Ei'' -e e:a%ined at t(e 'ater section 3 concernin) e'ectricit" consu%ers? contract @ua'it" in a co%petiti#e en#iron%ent

    33

    Ioannis P. Papanastasopoulos (2009)

    It is not su))ested (ere t(at a %ain )oa' o! t(e 8G +ECs? un-und'in) *as 7or s(ou'd (a#e -een) t(e en(ance%ent o! e'ectricit" consu%er contracts. 1. Consu%ers? contracts t(ou)( are one o! t(e !ie'ds t(at a positi#e e!!ect is e:pected a!ter t(e un-und'in) o! t(e distri-ution ser#ices !ro% t(e contesta-'e consu%er retai' ser#ices. T(e European re)u'ation set in !orce *it( t(e E'ectricit" directi#e 25534324EC is %o#in) to t(is direction since it re@uires a%on) ot(ers t(e un-und'in) o! t(e retai'4sa'es !ro% distri-ution ser#ices 7+o'! Gunne/e T(eo Fens 255$ p)1.22). T(e TE,?s E'ectricit" 6irecti#e is a %ore decisi#e step !urt(er to un-und'in). So in t(e states t(at price caped %onopo'" sti'' e:ist a!ter t(e o*ners(ip separation -et*een t(e supp'" and distri-ution *i'' (e'p t(e contract @ua'it" a%e'ioration. T(is re@uire%ent t(ou)( is sti'' into pro)ress o! i%p'e%entationF one %e%-er state (as adopted o*ners(ip separation nine (a#e adopted 'e)a' un-und'in) nine ad%inistrati#e 7accounts) un-und'in) !our %ana)e%ent un-und'in) and t*o no un-und'in) at a''.
    *--E? Ta#le 5: @istri#ution net,or" un#undling in the E.' E. energy mar"et li#erali2ation statistics )66:

    2.% 1he State !wned Enterprise


    T(e second %ode' e:a%ined in t(is paper is t(e %ode' o! t(e state o*ned e'ectricit" !ir%. T(is %ode' is )oin) to -e e:a%ined in re)ards to t(e contracts @ua'it" t(at t(e State O*ned Enterprise 7SOE) e'ectricit" supp'ier is e:pected to o!!er to consu%ers. T(e reasons t(at t(is %ode' is e:a%ined are t*o!o'd. First o! a'' t(is *a" o! or)ani9in) t(e sector *as t(e do%inant in European conte:t unti' t(e *a#e o! 'i-era'i9ation in t(e second (a'! o! nineties. Second'" t(is !or% o! or)ani9ation (as not "et tota''" e:tinct. As it is s(o*n in ta-'e $ %an" European %e%-er states (a#e a-andoned t(is %ar/et structure -ut in ot(ers %i:ed econo%" or e#en pure state o*ned enterprises sti'' e:ist.
    ANNEA Ta#le 7: Pu#lic o,ned distri#utors Asuppliers in E. mem#er states

    A't(ou)( t(e e'ectricit" directi#es (a#e -een i%p'e%ented to e#er" %e%-er state t(ere are sti'' suc( %ode's sur#i#in) in so%e states in practice. T(us t(ere is a portion o! European e'i)i-'e consu%ers t(at are sti'' contractin) *it( incu%-ents a!!i'iated *it( or partia''" o*ned -" t(e 'oca' )o#ern%ents and %unicipa'ities. A'' t(e %e%-er states (a#e i%p'e%ented t(e e'ectricit" directi#es. T(is %eans t(at t(e %ost state o*ned supp'iers sti'' e:istin) *i'' operate in a 'i-era'i9ed %ar/et %a/in) decisions *it( co%petiti#e criteria. At
    1.

    T(e un-und'in) o! e'ectricit" retai' ser#ices !ro% t(e distri-ution ser#ices is possi-'e in 8G since 2551 under t(e separate 'icensin) -et*een t(e t*o ser#ices esta-'is(ed -" t(e 8ti'ities Act 2555

    32

    Ioannis P. Papanastasopoulos (2009)

    t(e sa%e ti%e in ot(er states 'i/e 0reece and Ire'and sti'' a State O*ned supp'ier e:ists and is practica''" a %onopo'ist in t(e s%a'' consu%er %ar/et. In t(is sense t(e ana'"sis o! t(is %ode' does not (a#e on'" a (istorica' #a'ue -ut a'so a practica' one.

    &.2.1 State !wned Enter1rises *S!E+4 5rief 6istory,

    oals, and !b"ectives

    A co%pre(ensi#e #ie* on t(e SOE as a !or% o! industria' or)ani9ation can -e ac(ie#ed -" presentin) t(e reasons o! t(eir !or%ation and t(eir )oa's. Kernon %entions as a (istorica' reason t(e creation or nationa'i9ation enterprises assi)ned to carr" out a *arBre'ated acti#it". A po'itica' reason t(at stands !or a nu%-er o! countries suc( as 8G Scandina#ian counties and 0reece is t(e raise in po*er o! socia'Bde%ocratic parties. =e a'so considers t(e SOE as an indirect *a" !or e:tractin) ta:es !ro% consu%er *it( ad%inistrati#e con#enience. Moreo#er countries tr" !or strate)ic purposes to ac(ie#e autono%" in a sector t(at t(e" consider i%portant !or t(e state?s econo%" and to create )'o-a''" co%petin) nationa' c(a%pions. Furt(er%ore Kernon stresses out t(e intention to de#e'op and protect #u'nera-'e in!ant industries 7+. Kernon 1.&. p&B.). Fina''" )o#ern%ents o!ten use pu-'ic and socia' po'ic" )oa's suc( as e%p'o"%ent and sta-i'it". T(e reasons *(" a SOE is created to so%e e:tend deter%ine its )oa's decision %a/in) and conduct. Kernon ar)ues t(at t(ese )oa's are rat(er a%-i)uous and di!!icu't to ac(ie#e -" SOE %ana)ers -ecause o! t(eir %u'tip'icit" and t(e trade o!!s in#o'#ed in t(eir decision %a/in) 7+. Kernon 1.&. p15). =. +ai!!a stresses out t(e #ariet" o! t(e )oa's t(at a state o*ned enterprise %a" pursue. T(e econo%ic e!!icienc" is on'" one o! %an" )oa's ot(ers -ein) supportin) e%p'o"%ent !aci'itation inco%e redistri-ution and e:terna'ities? interna'i9ation 7e.). i%pro#e%ent o! en#iron%enta' @ua'it"). =e t(en ana'"9es t(e i%pact t(is di#ersit" o! )oa's (as in t(e enterprise?s decision %a/in). =e does t(at in a principa'Na)ent ana'"sis a)ent -ein) t(e appointed %ana)ers principa' -ein) t(e po'iticians 7+. Kernon O. A(aroni 1.;1 pp3$B3.).

    &.2.2 / $heoretical Framewor, for S!E Criticism


    Accordin) to t(e )oa's and purposes presented state inter#ention in t(e %ar/et -" t(e %eans o! state o*ned enterprise see%s to -e 1usti!ied in t(e na%e o! t(e pu-'ic interest 25.
    25

    T(e socia' ro'e o! t(e underta/in)s t(at pro#ide ser#ices o! )enera' econo%ic interest 7suc( as uti'ities) is reco)nised -" t(e E8 Treat" as *e'' in artic'e 1$. Aid to pu-'ic underta/in)s pro#idin) t(is /ind o! ser#ices is per%itted !or pu-'ic po'ic" reasons on t(e condition it does not distort co%petition or interstate trade 7Treat" o! Nice art. ;$ ;&.2 ;&.3)

    33

    Ioannis P. Papanastasopoulos (2009)

    Fo''o*in) t(at #ie* 'e)is'ators and SOEs? %ana)ers pursue t(e pu-'ic interest %eanin) t(e -ene!it o! t(e pu-'ic and t(e societ" at 'ar)e. Nu%erous aut(ors suc( as +. ,osner 71.&2) and H. A. den =erto) 71...) !ind suc( an e:p'anation !or t(e state inter#ention in t(e %ar/et insu!!icient 7H. A. den =erto) 1... pp231B232). Indeed assu%in) t(at po'iticians and %ana)ers o! SOEs %a/e decisions -ased on'" on pu-'ic interest di!!erentiation !ro% t(at cou'd not -e e:p'ained. SOEs as a !or% o! industria' or)ani9ation (a#e recei#ed a 'ot o! criticis% concernin) t(eir ine!!icienc". +. Barte' and F. Sc(neider 71..5) in t(eir ana'"sis o! t(e Austrian SOEs e!!icienc" present a co%pre(ensi#e !ra%e*or/ o! t(eories t(at can e:p'ain t(e pu-'ic sector ine!!icienc" 7+. Barte' and F. Sc(neider 1..5 pp21B22). Accordin) to t(e propert" ri)(ts approac( -ecause %ana)e%ent and o*ners(ip are apart a princip'e a)ent pro-'e% is e:pected to occur. T(at is -ecause o! t(e ta:pa"ers? 7o*ners) and po'iticians? 'o* incenti#es to %onitor t(e -e(a#ior o! %ana)ers 7a)ents o! t(e !or%er). Conse@uent'" t(e 'ater do not %a/e decisions t(at -ene!it t(e !or%er. T(e :Bine!!icienc" t(eor" e:p'ains *(" %ana)eria' s'ac/ is e:pected to -e *orse in t(e pu-'ic sector under t(e assu%ption t(at resources 7state su-sidies and !undin)) are %ore a#ai'a-'e t(an in pri#ate sector. In 'ac/ o! incenti#es sc(e%es !or t(e e%p'o"ees o!ten pu-'ic ser#ants and %ana)ers %a" resu't to s(ir/in) 7,. 6. Ca%eron 255& pp&B.). Fo''o*in) t(e Nis/anen 71.&3) %ode' o! -ureaucrac" %ana)ers 'ess %onitored 'ess pressured -" po'iticians !ee' !reer to in#o'#e in acti#ities t(at )i#e t(e% persona' )ain presti)e and po*er. Fina''" t(e ,u-'ic C(oice t(eor" 7Kir)inian) see%s to e:p'ain -etter t(e ine!!icienc" o! t(e SOEs. +ent see/in) %ana)ers and rent see/in) po'iticians !ind it attracti#e to e:p'oit t(e SOE as a #e(ic'e !or ser#in) t(eir persona' interests and o-1ecti#es 7%onetar" presti)e #otes ree'ection and career). T(e Kir)inia t(eor" e:p'ains *(" t(e decision %a/in) o! t(e enterprise?s %ana)ers and t(eir super#isin) 'e)is'ators -ene!its particu'ar )roups in t(e societ". Bene!ited interest )roups a'so in#est in en1o"in) suc( a pri#i'e)e. Consistent to t(e pu-'ic c(oice #ie* is t(e pattern t(at Kernon detects in %ana)ers e!!ort to -e %ore independent !ro% po'iticians 7+. Kernon 1.&. p15). T(is /ind o! conduct is a rationa' -e(a#ior !or a rent see/in) %ana)er *(o pre!ers a 'a:er %onitorin) and t(us )reater discretion. T(e Kir)inia sc(oo' approac( *i'' -e use!u' in t(e atte%pt ana'"9e t(e ine!!icient and un!air ter%s detected in a pu-'ic o*ned e'ectricit" enterprise consu%er SFCs.

    &.2.# Criticism and Concerns about .tility S!E


    3$

    Ioannis P. Papanastasopoulos (2009)

    Ba'd*in and Ca#e 71...) in t(eir e#a'uation o! t(e Britis( uti'ities re)u'ation 'ist t(e %ain points o! criticis% re'ated to t(e 8G SO 8ti'ities 7,u-'ic Corporations). T(e uti'it" ser#ices in t(e 8G Bas in t(e o#er*(e'%in) %a1orit" o! %e%-er states at t(e ti%eB *(ere pro#ided -" SOE. T(e %ain concerns stressed out *ere a-out: T(e constraints on pu-'ic !undin) o! t(e nationa'i9ed industries t(e e!!icienc" o! t(ese enterprises and t(eir incenti#e sc(e%es t(e #a)ueness o! t(eir )oa's and o-1ecti#es t(e ro'e o! super#isin) po'iticians 7%inisters) in t(e decision %a/in) o! t(ese enterprises and t(e *(ic( *as considered as e:cessi#e t(e" used to set o-1ecti#es t(at *ere inappropriate and inconsistent *it( t(e )oa's o! t(e uti'it" suc( as e%p'o"%ent protection 'ac/ o! 'on) ter% p'annin) and !ina''" 'ac/ o! transparenc" in re)ards to t(e enterprise?s decision %a/in) %ec(anis% 7+. Ba'd*in M. Ca#e 1... pp1.5B1.1). T(ese concerns are consistent *it( t(e !or%er ana'"sis o! t(e SOE )oa's and can -e e:p'ained -" di!!erent approac(es o! criticis% 7e.). not restrained !undin) and 'ac/ o! e!!ecti#e incenti#e sc(e%es -" :Bine!!icienc" t(eor" e%p'o"eeBprotectin) po'iticians -" t(e pu-'ic c(oice approac() Speci!ica''" !or t(e e'ectricit" SOE A. La/atos 72552) ar)ues t(at are e:pected to %a/e decisions and (a#e o-1ecti#es t(at are not so'e'" -ased on econo%ic )rounds and co%%ercia' consideration. T(is is 'i/e'" to (appen -ecause t(eir )oa's are o!ten nonBpro!it assi)ned -" t(e )o#ern%ent 7A. La/atos 2552 p132). La/atos )i#es )o#ern%ent %andated nationa' e'ectricit" se'!Bsu!!icienc" as an e:a%p'e 7A. La/atos 2552 p131). =e a'so c'ai%s t(at t(is distortion o! )oa's is not e:pected to occur i! t(e e'ectricit" SOE coe:ists *it( pri#ate !ir%s in a co%petiti#e en#iron%ent. In co%petition conditions co%petitors e#en !rin)e constrain t(e e'ectricit" SOE?s -usiness decisions to -e -ased on'" on co%%ercia' criteria. T(e SOE ine!!icienc" ("pot(esis is -ac/ed up -" a 'ot o! e%pirica' e#idence. 21Speci!ica''" in t(e e'ectricit" sector Ernesto 6a' BP and MartQn A. +ossi in a )reat sca'e researc( on ;5 Latin A%erican e'ectricit" distri-ution !ir%s e:a%ined a%on) ot(ers t(e re'ation -et*een !ir% o*ners(ip and e!!icienc" and !ound t(at pri#ate o*ned !ir%s *ere !ar %ore e!!icient t(an t(eir SO counterparts22 7Ernesto 6a' BP and MartQn A. +ossi 255$ p.31).

    &.2.& S!E and Electricity Contracts

    21

    +. Barte' and F. Sc(neider re!er to #arious researc(es conducted -" Borc(erdin) et a'. 71.;2) Fre" 71.;3) =a%er 71.;2) and Oarro* 71.;$) s(o* t(at pri#ate enterprises are %ore e!!icient in ser#ice sector t(an t(e SOEs. In addition e%pirica' researc(es conducted -" 0a''aisB=a%ono 71.;3) and Board%an and Kinin) 71.;.) s(o* t(at pri#ate enterprises are %ore e!!icient in producin) pri#ate )oods 7+. Barte' and F. Sc(neider 1..1 p21). 22 ,u-'ic O*ners(ip du%%" *as !ound to -e positi#e and si)ni!icant in 1R 'e#e'

    3&

    Ioannis P. Papanastasopoulos (2009)

    A!ter a !ra%e*or/ o! ana'"sis is -ui't up (ere it is app'ied on e'ectricit" SOEs decision %a/in) t(at is re'ated to consu%er contracts. Accordin) o! t(e t(eoriesBapproac(es presented a-o#e t(e #ersati'e %u'tip'e and o!ten #a)ue )oa's o! t(e e'ectricit" SOE (a#e to -e ta/en into account *(en ana'"9in) t(e SOEs decision %a/in) process. T(e ine!!icienc" criticis% to*ards t(e SOEs s(ou'd a'so -e ta/en into consideration. Fina''" t(e ro'e t(at an e'ectricit" SOE is ca''ed to p'a" in t(e econo%" is e:pected to -e a deter%inant !actor !or t(e e'ectricit" consu%er SFCs? content. First'" consu%er ener)" contracts are not e:pected to -e dra!ted in *a" t(at t(e" are econo%ica''" or socia''" e!!icient since t(e e'ectricit" SOE is ser#in) a %u'tip'icit" o! o-1ecti#esF econo%ic e!!icienc" is on'" one o! t(e%. T(us %an" c'auses t(at ser#e ot(er purposes t(an econo%ic e!!icienc" %a" -e !ound in t(e%. Suc( c'auses cou'd -e a %eans o! indirect ta:ation or inco%e redistri-ution. Furt(er%ore t(e propert" ri)(ts approac( criticis% predicts t(at a principa' a)ent pro-'e% *i'' occur. App'"in) t(is prediction to contracts it is e:pected t(at t(e c'auses contained are not dra!ted -" t(e dra!tersBa)ents 7%ana)ers) in t(e *a" t(at -ene!it t(e ta:pa"ersBcapti#e consu%ers 7o*ners). T(e :Bine!!icienc" t(eor" predicts %ana)eria' s'ac/ and 'ac/ o! incenti#es. T(is prediction is en!orced -" t(e principa' a)ent pro-'e% %entioned a-o#e and t(e 'ac/ o! incenti#es due to 'a: state -ud)et constrains. Speci!ica''" t(ere *i'' -e a si)ni!icant ti%e 'a) -et*een a si)na' trans%itted to %ana)ers -" court decisions or re)u'ation and t(e actua' co%p'iance in re)ard to contracts? content. T(e Nis/anen -ureaucrac" and t(e Kir)inian approac( predict t(at contract c'auses can -e e:pected to ser#e t(e %ana)ers? or t(e po'iticians? o-1ecti#es in t(eir atte%pt to %a:i%i9e t(eir )ains presti)e and #otes 7uti'it" in )enera') usin) t(e contract dra!tin) po*er o! t(e SOE 7rent see/in) accordin) to Kir)inians). T(us contract c'auses %a" -ene!it speci!ic pressure )roups. T(ese predictions are %ore ("pot(eses rat(er t(an conc'usions. Conse@uent'" an atte%pt *i'' -e %ade in order to see i! t(e" are #eri!ia-'e to so%e e:tent.

    &.2.% $he Case Study of

    reece

    In t(is atte%pt 0reece is )oin) to -e used as a case stud". 0reece (as a 'on) tradition o! SOEs and (as e:perienced a )ro*t( o! t(e pu-'ic sector durin) t(e ei)(ties !o''o*ed -" a *a#e o! 'i-era'i9ation a!ter t(e %id nineties. Bot( e'ectricit" directi#es (a#e -een i%p'e%ented -ut sti'' e'i)i-'e consu%ers are capti#e. T(us 0reece is one o! t(e !e* %e%-ers t(at e'i)i-'e consu%ers contract on'" *it( t(e SO e'ectricit" supp'ier. T(ere is no co%petition in t(e s%a'' consu%er supp'" %ar/et. T(e !act t(at t(e e'ectricit" SOE is an 3;

    Ioannis P. Papanastasopoulos (2009)

    e:istin) industr" or)ani9ation %a/es 0reece a suita-'e case stud". On t(e ot(er (and an" conc'usions t(at #eri!" t(e ("pot(esesBpredictions ana'"9ed a-o#e s(ou'd -e #ie*ed *it( so%e reser#ation. An" case stud" is in!'uenced -" do%estic c(aracteristics and particu'arities.23 In order to test t(e predictions t(e e'ectricit" SFCs? content o! t(e 0ree/ SOE *i'' -e e:a%ined. Consu%er?s O%-uds%an
    22

    7CO) is t(e independent aut(orit" responsi-'e !or

    issues o! consu%er protection and consu%er co%p'ains 7CT++CE 255& p2.). In its 255; annua' report CO %a/es an e#a'uation o! t(e ,u-'ic ,o*er Corporation 7,,C) consu%er contracts and -i''in). T(e criticis% !ocuses in t*o %ain areas: First'" t(e artic'es 1; and 21 o! t(e e'ectricit" consu%ers? SFC t(at e:cept 'ia-i'it" !or da%a)es caused -" po*er sur)es and #o'ta)e !'uctuations second'" t(e irre'e#ant and inappropriate c(ar)es in consu%er contracts and -i''s. T(e ,,C?s SFCs (a#e -een !ound to -e inconsistent *it( t(e 8n!air Ter%s 6irecti#e. Especia''" t(e c'ause t(at e:e%pts !ir% 'ia-i'it" !or da%a)es (as -een !ound un!air #arious ti%es -" courts. ,atras Appea' Court in t(e &2342551 decision !ound t(e c'ause to -e un!air. T(is appea' decision *as appro#ed -" t(e 0ree/ Supre%e Ci#i' court *it( its 32542553 decision. T(e ter% *as a'so !ound un!air -" Larissa Appea' Court *it( its 3;$4255$ decision. Moreo#er t(e CO (as %ade %ore t(an !i#e decisions and su))estions re)ardin) t(e c'ause.23 Oet in its 255; annua' report consu%er o%-uds%an !ind t(e c'ause to -e sti'' in use and consu%ers co%p'ainin) a-out it 70ree/ Consu%er O%-uds%an Annua' +eport 255; pp.1B.3). T(is %ana)eria' -e(a#ior can -e e:p'ained *it( t(e !ra%e*or/ presented a-o#e. Mana)ers see% to i)nore t(e si)na'in) send -" court decisions European re)u'ation2$ and consu%er aut(orit" su))estions. T(e certain c'ause is not on'" un!air -ut a'so socia''" ine!!icient -ecause t(e enterprise does interna'i9e t(e conse@uences o! its decisions re)ardin) @ua'it" and in#est%ents. A no 'ia-i'it" ru'e %a/es a %ana)er indi!!erent *(et(er to in#est or not in 'o*erin) t(e possi-i'it" !or da%a)es to occur. A possi-'e e:p'anation cou'd -e t(at po'iticians do not (a#e stron) incenti#es to app'" pressures on %ana)ers to re#ie* t(e contracts. T(is -e(a#ior is predicted -" t(e propert" ri)(ts t(eor" and t(e principa' a)ent pro-'e% ana'"9ed a-o#e.
    23

    For instance 0reece ran/s 22nd a%on) t(e 2& European 8nion %e%-er states in t(e corruption perception inde: 255; re#ie*. (ttp:44***.transparenc".or)4po'ic"Sresearc(4sur#e"sSindices4cpi4255; Ernesto 6a' BP and MartQn A. +ossi 7255$) !ound t(at t(ere is stron) corre'ation -et*een countr" corruption perception inde: and !ir% e!!icienc" 7si)ni!icant in 1R 'e#e') 22 (ttp:44***.s"ni)oros/atana'oti.)r4 23 In@uir" in At(ens Bar 6ata-ase Bar %e%-er access 70ree/): (ttp:44***.dsanet.)r41522:&$;.(t% 2$ T(e Counci' 6irecti#e on un!air ter%s in consu%er contracts a'so app'ies on t(e co%%ercia' acti#it" o! t(e SOEs

    3.

    Ioannis P. Papanastasopoulos (2009)

    0o#ern%ent appointed %ana)ers can i%pro#e contract @ua'it" -" o%ittin) t(e no 'ia-i'it" c'ause. Furt(er%ore t(e @ua'it" o! supp'" -eco%es -etter -ecause t(e ,,C *ou'd (a#e %ore incenti#es to deter t(e a%ount o! da%a)es t(at are in!'icted to consu%ers. As a resu't consu%ers? *i''in)ness to pa" *ou'd increase and @ua'it" o! supp'" as *e''. T(e !act t(at %ana)ers do not act accordin)'" can -e e:p'ained -" t(e :Bine!!icienc" t(eor". Lac/ o! incenti#e sc(e%es and t(e a'%ost unrestrained state !undin) %a/e %ana)ers ine!!icient. T(ere!ore t(ere is a ti%e 'a) -et*een t(e court decisions E8 re)u'ation CO su))estions and t(eir i%p'e%entation in t(e SFC. T(is %a" -e a si)n o! %ana)eria' s'ac/ e:pected -" t(e :B ine!!icienc" t(eor". Mana)ers o! SOE t(at as seen in su-section 2.2.2 are appointed in order to ser#e t(e pu-'ic interest o-1ecti#e !ai' to ac(ie#e in t(at tas/ in t(is occasion. T(e second point o! criticis% is t(e e:tra and irre'e#ant c(ar)es. Accordin) to t(e CO re#ie* t(e ,,C?s contracts are used as a %eans to co''ect #arious ta:es. T(ese ta:es are na%e'" rea' estate ta: %unicipa'it" ta: and t(e =e''enic +adio Te'e#ision 7=+T) ta:. T(e a%ount o! t(ose ta:es is o!ten )reater t(an t(e a#era)e a%ount spent !or (ouse(o'd consu%ption. T(is aspect o! t(e contracts and -i''s o-#ious'" sa#e so%e transaction costs !or t(e %unicipa'it" and t(e" are a po'itica''" con#enient *a" o! indirect ta:ation. On t(e ot(er (and t(e" distort a''ocati#e e!!icienc". T(e %unicipa'ities? aut(orities decide t(e %a)nitude o! t(e ta:es co''ected e:cept !or t(e =+T ta:. T(is ta:in) structure is introduced -" 'a*. Le)is'atorsBpo'iticians are usin) t(e e'ectricit" SOE as a !isca' a)ent in order to co''ect ta:es. Moreo#er 'e)is'ator (as )i#en decision po*er and discretion to t(e 'oca' %unicipa'ities in re)ards to t(e consu%er contracts? and -i''s? content 70ree/ Consu%er O%-uds%an Annua' +eport 255; pp.3B.2). T(e pre#ious ana'"sis is consistent *it( Kernon?s ar)u%ent concernin) t(e %u'tip'icit" o! t(e o-1ecti#es t(at SOE (as to ac(ie#e. B" ta:in) )o#ern%ent and 'oca' %unicipa'ities po'iticians are practicin) inco%e redistri-ution. B" ta:in) !or =+T t(e )o#ern%ent ac(ie#es to pro#ide a pu-'ic )ood 7radio te'e#ision) to 0ree/ citi9ens. T(us it can -e c'ai%ed t(at t(is c'auses and -i''in) c(ar)es are 1usti!ied in t(e na%e o! pu-'ic interest. At t(e sa%e ti%e t(is -e(a#ior can -e #ie*ed as a rent see/in) acti#it". +entB#ote see/in) 'e)is'ators do not re%o#e t(e %unicipa'it" ta:es -ecause t(e" are a!raid o! 'oosin) t(e support o! t(e %unicipa'it" po'iticians. Municipa'it" po'iticians do not c(ar)e t(e ta:es direct'" -ut use e'ectricit" contracts and -i''s -ecause is po'itica''" cost'ess and t(us con#enient. 0o#ern%ents and -ureaucrats do not re%o#e t(e =+T ta:es -ecause t(e" need to support pu-'ic radio and te'e#ision *(ic( are 'in/ed *it( t(e )o#ern%ent and )o#ern%ents count on t(eir support. ,ressure )roups do not sta" out o! t(is rent see/in) 25

    Ioannis P. Papanastasopoulos (2009)

    )a%e. In t(e %unicipa'it" o! ,atras a %a1or 0ree/ cit" e'ectricit" consu%ers (ad to pa" unti' 2553 a !i:ed a%ount o! co%pu'sor" CdonationD to t(e 'oca' c(urc( constructions e#er" "ear. T(e %unicipa'it" po'iticians (a#in) t(e re'e#ant discretion -ene!ited speci!ic pressure )roups as t(e 0ree/ C(urc(.

    &.2.7 State !wned Enter1rise Conclusions


    It *as s(o*n t(at a't(ou)( SOEs and speci!ica''" e'ectricit" SOEs are created and operated in t(e na%e o! pu-'ic interest 7e:p'icit'" or i%p'icit'") -ut suc( an approac( is rat(er si%p'istic and non rea'istic. 8n!air and ine!!icient c'auses are !ound in t(e e'ectricit" contracts. It *as not a surprise t(at a SOE does not -ase its contract dra!tin) so'e'" on co%%ercia' or e!!icienc" criteria since it is ca''ed to ser#e -roader and %u'tip'e )oa's. It *as s(o*n t(ou)(t t(at t(e 'ac/ o! e!!icienc" is not 1usti!ied -" t(e pu-'ic interest pursuit. A %ore suita-'e e:p'anation see%s to -e %ana)eria' s'ac/ and t(e rent see/in) o! t(e di!!erent actors in#o'#ed in t(e decision %a/in) in re)ards to t(e contract content. To conc'ude t(e e'ectricit" consu%er contracts t(at a SOE o!!ers are not e:pected to -e opti%a''" e!!icient and !air 7econo%ic and 'e)a' perspecti#e). At t(e sa%e ti%e t(is distortion is not 1usti!ied so'e'" -" t(e pursuit o! t(e pu-'ic interest.

    2.- 1he 3ew Legislation and the Monopolistic +egimes


    In t(is t(e t*o e'ectricit" inte)rated %onopo'istic %ode's *ere ana'"9ed. T(ese t*o %ode's sti'' e:ist to so%e e:tent in t(e conte%porar" e'ectricit" supp'" %ar/ets. Moreo#er a!ter t(is ana'"sis is possi-'e to e:a%ine in 'ater sections *(et(er t(e ne* 'e)is'ation and re)u'ator" !ra%e*or/ adopted *i'' so'#e t(e distortion o! incenti#es and ot(er i%p'ications detected in t(ese %onopo'istic %ar/et structures. At t(is point so%e conc'usions can -e dra!ted concernin) t(e e!!ecti#eness o! t(e ne* Le)is'ation in re'ation to t(e pre#ious re)i%es contract ine!!iciencies. As i''ustrated in t(is section in -ot( %onopo'istic %ode's 7SOE and pri#ate) t(e incenti#es o! t(e e'ectricit" enterprises *(en dra!tin) consu%er contracts are !ar !ro% opti%a'. T(e pri#ate inte)rated %onopo'ist *(en price capped in distri-ution or trans%ission and not re)u'ated in supp'" ser#ices does not (a#e )ood incenti#es to dra!t e!!icient contract c'auses. Moreo#er t(e pri#ate e'ectricit" inte)rated %onopo'ist does not (a#e incenti#es to in#est in dra!tin) ne* e!!icient c'auses since s(e (as no stron) interest in 21

    Ioannis P. Papanastasopoulos (2009)

    i%pro#in) consu%ers? *i''in)ness to pa". T(e pu-'ic o*ned inte)rated %onopo'ist on t(e ot(er (and is e:pected to -e :Bine!!icient. In addition to t(at t(e decision %a/in) in re)ard to contracts is not -ased on pure econo%icBco%%ercia' concerns. Conse@uent'" t(e pu-'ic interest approac( e:pects t(e contract content to ser#e pu-'ic po'ic" )oa's. At t(e sa%e ti%e pri#ate interest approac(es to pu-'ic sector decision %a/in) e:pects t(e contract content to ser#e t(e persona' interests and o-1ecti#es o! t(e decision %a/ers 7%ana)ers po'iticians) or e#en socia' )roups. It is interestin) (ere to see i! t(e cause o! t(is ine!!icienc" cease to e:ist under t(e ne* 'e)is'ature !ra%e*or/.

    &.&.1 $he Private 2ono1oly


    8nder t(e pri#ate %onopo'" sc(e%e t(e %ain pro-'e% see%s to -e inte)ration. T(e Second E'ectricit" 6irecti#e esta-'is(es accountin) %ana)eria' and 'e)a' un-und'in) -et*een distri-ution operators and co%petiti#e ser#ices o! t(e supp'" %ar/et. T(ere!ore t(e cause t(at distorted t(e incenti#es 7inte)ration) at 'east in t(eor" does not e:ist an" %ore. T(e T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e proceeds in adoptin) %ore drastic !or%s o! un-und'in). A'' t(e t(ree !or%s adopted see% to -e e!!ecti#e enou)( to )uarantee t(at un-und'in) -et*een distri-ution and supp'" ser#ices 7inc'udin) contract dra!tin) and contractin)) *i'' e:ist in practice. Conse@uent'" under t(e ne* 'e)is'ation and especia''" t(e T(ird Ener)" ,ac/a)e e#en i! t(ere is no e!!ecti#e co%petition in t(e supp'" %ar/et e'ectricit" consu%er contracts are e:pected to a%e'iorate.

    &.&.2 $he S!E


    +e)ardin) t(e SOE case t(e %ain cause o! ine!!icienc" *as pu-'ic o*ners(ip co%-ined *it( 'ac/ o! co%petition in t(e retai' %ar/et. Co%petition is said to -e t(e -est re)u'ator 7+. Ba'd*in M. Ca#e 1... p)211). A!ter t(e preconditions !or pri#ati9ation and co%petition are set in t(e sector t(e cause o! t(is ine!!icienc" *i'' cease to e:ist. E#en i! t(e supp'" ser#ices re%ain state o*ned t(e co%petiti#e pressure *i'' o-'i)e t(e State O*ned underta/in) to %a/e decisions -ased on econo%ic concerns 7A. La/atos 2552 p) 132). In a supp'" %ar/et t(at t(e co%petitors *i'' start o!!erin) e!!icient and !air contracts N to t(e e:tent e!!icient and !air t(e contracts cou'd -e under co%petiti#e en#iron%entB and start si)na'in) t(eir contract @ua'it" t(e State O*ned underta/in)?s consu%er contracts *i'' not (a#e t(e %ar)in to ser#e ot(er o-1ecti#es t(an econo%ic e!!icienc" and co%%ercia' purposes. T(e %ana)ers *i'' not (a#e t(e 'u:ur" to -e :Bine!!icient or t(e parties t(at 22

    Ioannis P. Papanastasopoulos (2009)

    in#o'#e in t(e contract dra!tin) decision %a/in) t(e discretion to ser#e pri#ate interests. Conse@uent'" co%petition e#en !ro% !rin)e !ir%s *i'' !unction as a !or% o! natura' consu%er protection. Conc'udin) to t(e e:tent t(at t(e Second E'ectricit" 6irecti#e and t(e T(ird Ener)" ,ac/a)e are en!orced in practice it is e:pected t(at e'ectricit" consu%er contracts *i'' -e %ore !air and e!!icient. 8n-und'in) co%petition and en(anced sector speci!ic consu%er protection *i'' (e'p to t(is direction. It is not su))ested t(at sudden'" opti%a' in 'en)t( and @ua'it" o! content contracts are )oin) to -e o!!ered in t(e co%petiti#e supp'" %ar/et. Moreo#er t(e consu%er is ca''ed to p'a" an acti#e ro'e in t(e %ar/et -" contractin) *it( t(e supp'ier o! (is c(oice. In t(is tas/ consu%ers are con!ronted *it( a ne* c(a''en)e t(e in!or%ation costs and t(e conse@uent in!or%ation as"%%etr" pro-'e% 7Si)nin) *it(out +eadin)). T(us e'ectricit" consu%er contracts content and contract re)u'ation can p'a" an i%portant ro'e to*ards an inte)rated co%petiti#e e'ectricit" supp'" %ar/et. In t(e proceedin) section !i#e a transactionBopportunit" cost ana'"sis o! t(e ne*'" co%petiti#e e'ectricit" %ar/et *i'' -e presented. It *i'' a'so -e atte%pted to -ui't up a %ode' !or a esti%atin) t(e ti%e an a#era)e s%a'' consu%er is de#otin) in searc(in) e#a'uatin) and si)nin) a ne* contract.

    Section -: T+e co%petiti e supp#y %ar'et i%p#ications


    Co%petition is t(e -est re)u'ator in t(e retai' %ar/et. To t(e e:tent t(at it is success!u''" introduced it is actin) as a !or% o! protecti#e s(ie'd !or t(e consu%ers. E!!ecti#e co%petition in t(e supp'" %ar/et pressures e'ectricit" supp'iers to dra!t inno#ati#e and o! (i)(er @ua'it" and #a'ue contracts. 6i#ersi!ication o! contract o!!ers and #ariet" o! contract ter%s dra!ted i%pro#es t(e a''ocati#e e!!icienc" in t(e retai' %ar/et 7OEC6 2553 p)112). Eac( consu%er can C-u"D t(e contract ter% t(at suits (er -est. In addition consu%ers (a#in) %ore a'ternati#e c(oices can a#oid ine!!icient and4or un!air ter%s -" si)nin) a -etter a'ternati#e contract. Consu%ers t(at -u" t(e -est contract c'auses in t(e %ar/et 'ead to contract c'ause co%petition a%on) supp'iersBdra!ters. T(e supp'iers *i'' -id !or consu%ers to si)n t(eir contracts o!!erin) -etter price and non price re'ated c'auses. T(ere!ore contract @ua'it" is e:pected to i%pro#e. A'' t(ese t(ou)( under t(e assu%ption t(at consu%ers read understand e#a'uate and co%pare t(e contract o!!ers. But does t(is assu%ption stand> Ei'' a rationa' consu%er de#ote ade@uate ti%e in t(ese tas/s>

    23

    Ioannis P. Papanastasopoulos (2009)

    Co%petition in t(e retai' %ar/et is e:pected to so'#e %an" pro-'e%s o! t(e past t(at c(aracteri9ed t(e %onopo'" retai' %ar/ets. Fir%s in t(e co%petiti#e %ar/ets si)na' t(eir contract content di#ersi!" t(eir contract o!!ers and co%pete in contract @ua'it". Co%petiti#e %ar/ets are )enera''" considered to pro%ote a''ocati#e e!!icienc" to an opti%a' 'e#e'. Indeed under t(ree conditions: First'" t(at co%p'ete %ar/ets !or a'' co%%odities inc'udin) pu-'ic )oods and pu-'ic -ads 7e:terna'ities) e:ist. Second'" no %ar/et participant can e:ercise %ar/et po*er. T(ird'" s"%%etric in!or%ation e:ists in t(e %ar/et. T(en a )enera' e@ui'i-riu% o! t(e %ar/et can -e reac(ed *(ic( is t(e opti%a' in respect to a''ocati#e 7,areto) e!!icienc" 7B. =er%a'in A. Gat9 +. Cras*e'' 255$ pp1&B1;). In t(e %onopo'istic %ar/ets t(e transaction and opportunit" costs *ere #er" 'o*. A consu%er *ou'd 1ust si)n t(e on'" contract a#ai'a-'e in t(e %ar/et *it(out searc(in) and *it(out e#a'uatin) it. Transaction costs t(at are a co%petiti#e %ar/ets? endo)enous pro-'e% can si)ni!icant'" in!'uence contract @ua'it". T(e transaction costs in t(e supp'" %ar/ets cause an in!or%ation as"%%etr" %ar/et !ai'ure /no*n as Si)nin) *it(out +eadin). Conse@uent'" co%petition -" itse'! is not e:pected to con#ert t(e e'ectricit" retai' %ar/et to a pro-'e% !ree paradise un'ess a'' t(e t(ree re@uire%ents o! ,areto e!!icienc" are %et s"%%etric in!or%ation -ein) one o! t(e%.

    4.& )onsumers in a 3ew +ole


    Consu%ers? !ree c(oice is t(e touc(stone o! t(e 'i-era'i9ation process in t(e supp'" %ar/et and t(e e'ectricit" %ar/et in )enera'. In t(e ne* co%petiti#e en#iron%ent e'ectricit" consu%er is ca''ed to c(oose t(e -est o!!er in t(e %ar/et in ter%s o! price and non price e'e%ents. T(us %uc( o! t(e dere)u'ator" atte%pt?s success re'ies on t(e e'ectricit" consu%er?s rationa'it" as a %ar/et participant. 8nti' t(e nineties t(ou)( t(e e'ectricit" consu%er did not (a#e an" acti#e ro'e in t(e e'ectricit" %ar/et. T(e consu%er did not (a#e an" participation to t(e %ar/et decision %a/in). E#er"t(in) *as arran)ed or)ani9ed and super#ised -" t(e )o#ern%ent and its su-sidiar" underta/in)s. E#er" 'e)a' and tec(nica' issue *as desi)ned in detai' -" t(e state and t(e )o#ern%ent aut(orities. T(e e'ectricit" consu%er?s ro'e *as restricted in on'" to s*itc(in) t(in)s on and o!! 7,. 6. Ca%eron 255& pp;B.). T(e unti' recent'" protected and 'ac/in) o! an" !reedo% o! c(oice consu%ers are no* -ein) as/ed to co%pare and c(ose -et*een #arious co%p'icated o!!ers and 'en)t(" standard !or% contracts 7B. Barton 1... pp2;3B2;2). Consu%ers are as/ed to per!or% a tas/ !or *(ic( t(e" 'ac/ t(e re'e#ant capacit" to so%e e:tent. 22

    Ioannis P. Papanastasopoulos (2009)

    As seen in t(e su-section 3.2 t(e European %ar/et is a se)%ented one. Not a'' t(e European e'ectricit" consu%ers present t(e sa%e 'e#e' o! %aturit" to e:ercise t(eir !reedo% o! c(oice. Consu%ers in %ar/ets *it( an ear'" openin) 78G Nordic %ar/ets F'e%is( re)ion) are e:pected to -e %ore educated 2& and read" to c(ose t(e -est contract in t(e %ar/et. On t(e ot(er (and consu%ers in %ar/ets t(at co%petition (as -een ne*'" introduced are ine:perienced *(en it co%es to c(oosin) e'ectricit" supp'ier. Ne#ert(e'ess e#en in %e%-er states *(ere t(e e'ectricit" supp'" ser#ices are a (i)('" co%petiti#e %ar/et consu%ers !ace in!or%ation pro-'e%s *it( t(eir contracts and consu%er contracts are not o! t(e -est @ua'it".

    4.% )ompetitive Supply Mar,ets: A )ontract Paradise5


    In 0reat Britain !or e:a%p'e t(e supp'" %ar/et can -e considered %ature. T(e dere)u'ation e!!orts started in 1.;. *it( t(e introduction o! t(e e'ectricit" act and t(e residentia' consu%ers *ere a-'e to c(oose -" 1..;. T(e s*itc(in) rates !or (ouse(o'd consu%ers are steadi'" o#er 25R. In addition t(e consu%ers t(at do not c(an)e supp'ier do t(at as a de'i-erate c(oice and not -ecause o! insecurit" or inertia 7E+0E+0 Consu%er s*itc(in) report 2553 p) 23). In 255& t(ere *(ere 23 e'ectricit" supp'iers & o! *(ic( (ad %ore t(an 3R %ar/et s(are. 7Eurostat European e'ectricit" %ar/et indicators 255& pp3B2) T(e pro!it %ar)in o! t(ese co%panies represents a !raction under 3R o! t(e *(o'e e'ectricit" price and is one o! t(e 'o*est in E8 7EC T(ird E'ectricit" Mar/et Benc(%ar/in) +eport 2552 ,rice Brea/do*n). A'' t(ese !acts s(o* t(at t(e e'ectricit" %ar/et in 8G is a (i)('" co%petiti#e one. E#en in t(is %ar/et t(e in!or%ation t(at consu%ers (a#e in re'ation to contractua' c'auses and )enera' conditions o!!ered is not satis!actor". Accordin) to t(e 255; BE8C 7Bureau EuropTen des 8nions de Conso%%ateurs) report on e'ectricit" retai' %ar/et 8G is surprisin)'" one o! t(e %e%-er states t(at consu%ers !ace pro-'e%s in o-tainin) in!or%ation in re)ards to t(eir contractua' c'auses 7BE8C report 255; p) .). E'ectricit" consu%ers in ot(er co%petiti#e e'ectricit" supp'" %ar/ets !ace t(e sa%e c(a''en)e. Nor*a" S*eden and Fin'and are t(ree ot(er countries *it( %ore t(an 15R annua' consu%er s*itc(in). A'' o! t(e% proceeded in an ear'" 'i-era'i9ation o! t(e residentia' and s%a'' -usiness consu%er 7Nor*a" 1..1 S*eden 1... Fin'and 1..;). In
    2&

    In ter%s o! consu%er education and consu%ers? %aturit"

    23

    Ioannis P. Papanastasopoulos (2009)

    Nor*a" a %ain cate)or" o! co%p'aints t(at enter t(e dispute sett'e%ent %ec(anis% 7co%%ittee !or e'ectricit" co%p'aints) concerns e'ectricit" consu%er contracts. A'so in Fin'and one o! t(e t*o %ain cate)ories t(at are (and'ed -" t(e Consu%er Co%p'aint Board is e'ectricit" contracts 7E+0E0 consu%er protection report 2553 p)33). T(ese data s(o* t(at e#en under co%petiti#e conditions consu%er !ace in!or%ation pro-'e%s in re'ation to t(eir e'ectricit" contracts. Moreo#er t(e" s(o* t(at a't(ou)( a%e'ioration in contracts? @ua'it" is e:pected co%petition -" itse'! is not a-'e to pro#ide t(e -est contract @ua'it". Indeed t(e European specia' euro-aro%eter 21. 72553) s(o*s t(at 25R o! t(e European e'ectricit" consu%ers consider t(at t(eir e'ectricit" contracts is un!air and 1$R is not satis!ied *it( t(e e'ectricit" retai' ser#ice in )enera'. Consu%ers? satis!action !ro% t(eir contract content see%s to -e re'e#ant to t(e supp'" %ar/et co%petiti#eness. Ita'ian and 0ree/ consu%ers t(at at t(e ti%e *ere not e'i)i-'e to e:ercise !reedo% o! c(oice are t(e %ost unsatis!ied and %ore t(an 25R o! t(e% consider t(eir contracts un!air. Ne#ert(e'ess in countries t(at (ad a'read" 'i-era'i9ed t(e e'ectricit" supp'" %ar/et t(e consu%ers? 'ac/ o! satis!action is sti'' si)ni!icant'" *e'' a-o#e t(e a#era)e. Surprisin)'" in S*eden and Spain 2&R o! t(e consu%ers see t(eir contracts? content as un!air. Moreo#er 25R o! S*edis( and 2&R o! t(e 6anis( consu%ers are not satis!ied *it( t(e in!or%ation t(e" o-tain !ro% t(eir contracts? and -i''s? content *(i'e t(e European a#era)e is 1$R 7Specia' Euro-aro%eter 21. Anne:es 2553 pp$5 $;).2;

    4.- In'ormation )osts and Signing without +eading in the Li/erali6ed Electricity Supply Mar,et.
    =ere is i%portant to approac( t(e data presented a-o#e !ro% an econo%ic perspecti#e. T(e contract @ua'it" (as i%pro#ed in t(e era o! 'i-era'i9ation -ut sti'' t(ere are in!or%ation and !airness issues in re)ard to t(e e'ectricit" consu%er contracts. Ne#ert(e'ess as s(o*n ear'ier in section 3.2.1 and ta-'e 3 contract @ua'it" is not opti%a' and un!air c'auses are sti'' t(ere. In!or%ation is di!!icu't to o-tain and consu%ers are not satis!ied *it( t(eir contract @ua'it" and transparenc". E(at is %ore surprisin) is t(at t(ere are cases o! countries t(at are t(e pioneers in e'ectricit" supp'" ser#ices? 'i-era'i9ation and sti'' contract @ua'it" is an issue.2. In t(e ana'"sis o! t(e pre#ious su-section 2.3 it *as pointed out t(at 'i-era'i9ation
    2;

    T(e consu%ers? perception t(at contracts are un!air is %ore t(an an indicator !or contract @ua'it". Consu%ers? perception t(at contract @ua'it" is not )ood is an essentia' e'e%ent o! t(e Si)nin) *it(out +eadin) pro-'e%. As ana'"sed in section 2.1.2 consu%ers do not e:pect t(at t(e contracts t(e" si)n are o! )ood @ua'it" and t(us de%and !or @ua'it" contracts decreases. T(is p(eno%enon reproduces itse'! in a #icious circ'e. 2. A concurrent e:p'anation cou'd -e t(at in t(ose countries consu%ers are %ore de%andin) and %ore read" to co%p'ain a-out t(eir contract @ua'it" and to start a dispute sett'e%ent procedure t(an t(e 'ess 'i-era'i9ed

    2$

    Ioannis P. Papanastasopoulos (2009)

    and t(e ne*'" introduced re)u'ation is e:pected to i%pro#e contract @ua'it" co%pared *it( t(e %onopo'istic %ar/et structures. But t(at is not a'*a"s t(e case. Consu%ers are con!ronted *it( a ne* c(a''en)e t(at *as not t(ere -e!oreF in!or%ation and opportunit" costs in t(e !or% o! searc(in) readin) e#a'uatin) t(e content o! contracts o!!ered in t(e %ar/et.

    %.#.1 Consumers8 Rationality and Switching Errors


    In t(e preB'i-era'i9ation era t(e capti#e consu%er 1ust si)ned t(e on'" contract a#ai'a-'e in t(e %ar/et t(e incu%-ent?s contract. T(e %onopo'" era consu%er *as con!ident t(at price *as re)u'ated at cost -" t(e )o#ern%ent and t(at non price contractua' c'auses *ere contro''ed to ser#e pu-'ic interest35. In t(e co%petition era t(ere are se#era' or e#en tens o! o!!ers in t(e %ar/et and consu%ers are !ree to c(ose and si)n t(e contract t(at t(e" !ind !airer and -est in @ua'it". In order to do so consu%ers (a#e to searc( and co%pare -et*een t(e contracts o!!ered. Contracts? content #aries and e#en price re'ated contract ter%s #ar" a 'ot. E%p'o"in) t(eir rationa'it" is i%portant in t(is tas/. 8sin) t(eir rationa'it" e'ectricit" consu%ers do not on'" %ana)e to !ind t(e -est o!!er in t(e %ar/et -ut at t(e sa%e ti%e t(e" -ene!it t(e rest o! t(e consu%ers -" %a/in) t(e %ar/et %ec(anis% !unction and -" %onitorin) t(e contract @ua'it" 7positi#e e:terna'it" o! %onitorin) t(e contracts). +ationa'it" %a" see% eas" to e%p'o". Especia''" *(en it co%es to price re'ated aspects o! t(e contract o!!er. Co%parin) a set o! prices %i)(t not 'oo/ a (ard tas/. ,rice co%parison is !aci'itated -" t(e N+As and sector speci!ic consu%er -oards t(at pu-'is( in!or%ation concernin) e'ectricit" prices o!!ered -" #arious supp'iers. Ener)" Eatc( in 8G t(e Eatc( 6o) ser#ice o! t(e N+A?s EBcontro' site in Austria t(e S*edis( Consu%ers? A)enc" in S*eden t(e co%petition aut(orit" in Nor*a" and in Fin'and and 6en%ar/ t(e indi#idua' retai'ers or t(eir associations are responsi-'e !or pro#idin) t(is in!or%ation re'atin)Ba%on) ot(ersB to prices to consu%ers.31 Conse@uent'" *(en it co%es to price re'ated issues consu%ers can o-tain t(e re'e#ant in!or%ation easi'". =a#in) /no*'ed)e o! t(e prices it is eas" !or consu%ers to e%p'o" t(eir rationa'it" co%pare -et*een si%p'e nu%-ers and c(oose t(e c(eaper o!!er in t(e %ar/et 7OEC6 2553 p)111). Consu%ers t(ou)( do not C seem to act rationa''". T(e Austrian co%petition aut(orit" in a 2553 in#esti)ation in t(e 'i-era'i9ed 7since 2551) e'ectricit" supp'" %ar/et
    countries? consu%ers. 35 A't(ou)( as s(o*n in t(e section 3 t(is *as not a'*a"s t(e case 31 It s(ou'd -e -orn in %ind t(at supp'" %ar/ets in Nor*a" 8G 6en%ar/ Austria and S*eden (a#e -een !u''" 'i-era'i9ed in t(e sense t(at t(ere are no price contro's !or s%a'' -usiness and (ouse(o'd consu%ers. Mar/et is 'e!t !ree to reac( an e@ui'i-riu%. (ttp:44ec.europa.eu4ener)"4)asSe'ectricit"4doc4255;S3255.dc5113Stec(nica'Sanne:.pd!

    2&

    Ioannis P. Papanastasopoulos (2009)

    !ound t(at t(ere is )reat %ar)in !or consu%ers to s*itc( to a c(eaper supp'ier. A rationa' s*itc(in) at t(e %o%ent cou'd )ain to consu%er up to 35R sa#in)s. Surprisin)'" s*itc(in) *as 'o* 'ess t(an 2R per annu% and t(e consu%ers t(at s*itc(ed did not c(ose t(e c(eapest contract o!!er 7E+0E0 consu%er s*itc(in) report 2553 p)23). It *as o!ten t(e case t(at t(e" *ou'd si)n a contract *it( a %ore e:pensi#e incu%-ent a!!i'iated *it( a re)iona' 6istri-ution S"ste% Operator 7C T + + C E 255& pp31B32). An e:p'anation !or t(is -e(a#ior can -e t(at t(e" *ere 'oo/in) !or a %ore secure c(oice. In ter%s o! uti'it" ris/ ad#erse indi#idua's suc( as (ouse(o'd and s%a'' -usiness consu%ers %a" (a#e done a 'o)ica' c(oice. A ris/ ad#erse s%a'' consu%er #a'ues a 'ot t(e securit" o! supp'" t(at a distri-utorBa!!i'iated supp'ier can o!!er a't(ou)( t(is sense %a" -e !ar !ro% rea'it". Ne#ert(e'ess t(is /ind o! -e(a#ior did not (e'p co%petition to -e esta-'is(ed in t(e %ar/et. T(e sa%e issue (as -een stressed out -" G. E/ and ,. Soder(o'% !or t(e S*edis( supp'" %ar/et. T(e t*o aut(ors researc(ed t(e econo%ic and ps"c(o'o)ica' !actors -e(ind S*edis( consu%ers? decision %a/in) concernin) supp'ier s*itc(in). T(e" !ound t(at t(e consu%ers? di!!icu't" to esti%ate *(ic( contract o!!er *as t(e -est p'a"ed an i%portant ro'e in re'ation to t(eir decision not to c(an)e supp'ier. 32 Moreo#er t(e -e'ie! t(at s*itc(in) *ou'd not (a#e an i%pact to t(eir actua' -i''s *as a'so !ound si)ni!icant to t(eir decision %a/in) 33 7G. E/ and ,. Soder(o'% 255; pp232 23;). In e'ectricit" %ar/ets 'i/e t(e Austrian and S*edis( t(at retai' prices are not re)u'ated consu%er?s c(oice p'a"s a %a1or ro'e in re'ation to t(e price and contract @ua'it" e@ui'i-riu%.

    %.#.2 Consumers8 Signing without Reading or .nderstanding Electricity 9on Price Related $erms4 Com1arison with Price Related $erms
    In!or%ation concernin) t(e price re'ated parts o! t(e o!!er and price re'ated contractua' c'auses is re'ati#e'" eas" to o-tain and to co%pare. T(e re)u'ator" aut(orities (a#e -ui't up re'e#ant data-ases in %ost o! t(e %e%-er states. ,rice re'ated in!or%ation is si%p'e nu%-ers and it is eas" !or a consu%er no %atter (er education to co%pare -et*een prices. In t(at essence price re'ated c'auses are t(e 'east sop(isticated aspects o! t(e e'ectricit" o!!ers and contracts. On t(e ot(er (and nonBprice in!or%ation is (arder to ac@uire !ro% SFCs and %ore di!!icu't to e#a'uate. T(is part o! t(e contract is o!ten na%ed t(e -'ue print or t(e s%a'' 'etters o! t(e contract. It usua''" e:tensi#e'" contains 'e)a' ter%ino'o)" and sop(isticated tec(nica' ter%s.
    32 33

    statistica''" si)ni!icant in t(e 1R si)ni!icance 'e#e' statistica''" si)ni!icant in t(e 3R si)ni!icance 'e#e'

    2;

    Ioannis P. Papanastasopoulos (2009)

    Len)t( and sop(istication t(e t*o -'ue print?s c(aracteristics %a/e t(e non price re'ated content o! SFCs si)ni!icant'" 'ess inte''i)i-'e t(an t(e price re'ated content. Speci!ica''" in t(e e'ectricit" supp'" %ar/et t(e e:perience o! c(oosin) -et*een di!!erent o!!ers and e#a'uatin) di!!erent contracts %i)(t not -e a p'easant endea#or. Consu%ers are o!ten pu99'ed -" t(e co%p'e:it" o! t(e tec(nica' issues in#o'#ed in t(e non price re'ated content o! t(e contracts and con!used -" t(e #arious -ene!its and co%%ercia' sc(e%es t(at supp'iers o!!er 7B. Barton 1... p)2;2). A consu%er t(at *i'' not !ind *ort(*(i'e to in#est in e#a'uatin) and co%parin) t(e re'ati#e'" eas" to understand prices 7in!or%ation t(at is re'ati#e'" c(eap to ac@uire) *i'' !ind it 'ess attracti#e to in#est in %onitorin) t(e e:tensi#e #a)ue and sop(isticated non price re'ated content o! an e'ectricit" contract 7in!or%ation t(at is %ore e:pensi#e and di!!icu't to ac@uire). Consu%ers t(at do not s*itc( !or -etter prices or err *(en t(e" do so *i'' -e 'ess te%pted to in#est in readin) non price re'ated e'e%ents o! e'ectricit". In!or%ation is (arder and t(us %ore e:pensi#e to o-tain !ro% t(e -'ue print and t(e e:pected -ene!its !ro% doin) so are neit(er si)ni!icant nor o-#ious to t(e a#era)e consu%er. It is di!!icu't !or t(e unsop(isticated consu%er and e:pensi#e !or an" consu%er to 'ocate and econo%ica''" appreciate t(e #a'ue o! eac( non price contractua' c'ause. For i''ustration it is o!ten t(e case in Fin'and and France t(at e'ectricit" consu%ers are not a*are o! -asic c'auses in t(eir contracts suc( as contract ter%ination. E+0E0 reports t(at %an" Frenc( and Finnis( consu%ers re@uested to s*itc( *(i'e a'read" -ein) -ound to a pre#ious contract. T(is -e(a#ior is an indication t(at apparent'" so%e consu%ers are not a*are o! t(eir status and t(e content o! t(eir e'ectricit" contract 7E+0E0 consu%er s*itc(in) report 2553 p)32). T(ese consu%ers o!ten (a#e to pa" a pena't" !or t(e cance''ation o! t(eir !i:ed ter% contract. It (as to -e %entioned (ere t(at t(e c'auses re'ated to conditions !or t(e ter%ination o! t(e contract and t(e conse@uent cance''ation pena'ties are a%on) t(e %ost i%portant. Opportunit" searc(in) and si)nin) costs in#o'#ed in !indin) ne* supp'ier *i'' deter %an" consu%ers !or atte%ptin) to actua''" read and co%pare t(e content o! t(e contracts in t(e %ar/et. Man" consu%ers *i'' t(us s*itc( uti'i9in) ru'es o! t(u%- or routines 7as detected in S*eden) or *i'' pre!er not to c(an)e at a''. Conse@uent'" on'" a portion o! consu%ers *i'' actua''" -e in!or%ed a-out t(e o!!ers in t(e %ar/et and t(e content o! t(e contract t(e" !ina''" si)n. T(e 'o*er t(e consu%er?s opportunit" cost and c(an)in) !ee t(e %ore 'i/e'" t(e consu%er *i'' de#ote ti%e in readin) t(e contract c'auses o!!ered. E#en t(en on'" a !raction o! t(e consu%ers t(at to so%e e:tent read t(e contracts *i'' actua''" understand t(eir content. =o* %an" o! t(e consu%ers do understand and can econo%ica''" 2.

    Ioannis P. Papanastasopoulos (2009)

    appreciate t(e di!!erence -et*een t(e notions suc( as 'ia-i'it" !or !oreseea-'e da%a)es 78G) and 'ia-i'it" !or indirect conse@uentia' 'osses 7Nor*a")> O! t(ose (o* %an" /no* (o* t(ese t*o a-stract notions are interpreted and en!orced -" courts and dispute sett'e%ent -odies> Le)a' ter%s cou'd #er" *e'' -e %ore understanda-'e in re'ation to tec(nica' sector speci!ic ter%ino'o)". T(ere!ore t(e SE+ pro-'e% is not on'" a-out not readin) t(e contract is a'so a-out not understandin) it. T(e resu't is t(e sa%eF as"%%etric in!or%ation. T(e e'ectricit" consu%er SFC?s content is not %onitored @ua'it" deteriorates and a''ocati#e e!!icienc" in t(e %ar/et is 'o*ered due to 'o* @ua'it" contracts. E'ectricit" supp'iers are a*are o! t(is !act. A rationa' supp'ier *i'' add ine!!icient and4or un!air c'auses in (is consu%er SFC. Moreo#er t(e supp'ier *i'' tr" to raise t(e consu%er?s in!or%ationa' costs -" %a/in) t(e contract content %ore di!!icu't to read 'ess transparent and %ore tec(nica'. T(at is t(e reason *(" as it *as s(o*n in su-sections 3.2.1 and 3.2 un!air4ine!!icient ter%s are sti'' detected in t(e e'ectricit" consu%er contracts consu%ers are not (app" *it( t(e in!or%ation t(e" o-tain !ro% t(eir contracts and co%p'aints re)ardin) contract @ua'it" !re@uent'" reac( t(e dispute sett'e%ent -oards. As s(o*n e#en 'i-era'i9ationBpioneers countries score *e'' a-o#e t(e E8 a#era)e in co%p'aints a-out t(e contracts and in 'ac/ o! consu%ers? satis!action concernin) t(e contract @ua'it". T(e @ua'it" (as i%pro#ed a!ter t(e 'i-era'i9ation e!!ort started. A't(ou)( pro-'e%s o! t(e %onopo'ies are so'#ed *it( 'i-era'i9ation t(e in!or%ation costs t(at t(e consu%er !aces (a#e increased in t(e co%petiti#e en#iron%ent. T(e !raction o! t(e consu%ers t(at !ina''" read and actua''" understand t(e consu%er contracts are not enou)( to reac( t(e contract @ua'it" to an opti%a' e@ui'i-riu%. Mar/et po*ers are not enou)( to pressure on t(eir o*n t(e supp'iers Bcontract dra!ters to o!!er e!!icient and !air contracts. So !ar t(e issue o! Si)nin) *it(out +eadin) in t(e e'ectricit" supp'" %ar/et (as -een %ost'" co)niti#e'" ana'"9ed. In t(e !o''o*in) para)rap(s an e!!ort *i'' -e %ade to i''ustrate t(e actua' ti%e a rationa' consu%er de#otes *(en ac@uirin) in!or%ation !ro% #arious a'ternati#e contract o!!ers.

    %.#.& /n E:uation to Estimate the $ime a Rational Consumer S1ends on Reading and Evaluating /lternative Contract !ffers
    At !irst )'ance it is di!!icu't to understand *(" consu%ers 'i/e S*edis( or Austrian *it( 'on) tradition and e:perience to %ar/et econo%" *ou'd -e(a#e so Cirrationa''"D. Consu%ers t(ou)( can not spend in!inite a%ount o! ti%e 1ust !or !indin) t(e #er" -est contract in t(e %ar/et. Ti%e de#oted in searc(in) and readin) in#o'#es opportunit" cost. T(ere!ore 35

    Ioannis P. Papanastasopoulos (2009)

    consu%ers *i'' tr" to (a#e t(e -est resu'ts possi-'e *it( t(e 'ess ti%e spent. T(e 2553 OEC6 report on 'essons !ro% 'i-era'i9ed e'ectricit" %ar/ets points out t(e critica' ro'e t(at t(e transaction and opportunit" costs connected *it( s*itc(in) p'a"s in consu%er decisions 7OEC6 2553 p)111). It is t(us i%portant to e:a%ine *(et(er t(e decision not to searc( !or in!or%ation or 1ust to searc( super!icia''" and not understand t(e contract is an econo%ica''" rationa' one. Is t(is decision 1usti!ied -" t(e econo%ic ana'"sis> In order to ans*er t(is @uestion an e@uation is -ui't (ere. T(is e@uation atte%pts to s(o* t(at due to opportunit" cost ti%e is a scarce resource and t(at a rationa' consu%er *i'' de#ote on'" !e* (ours per "ear in readin) e#a'uatin) and si)nin) an e'ectricit" contract.

    The cost that consumer faces is: ECBTxCDC The #enefit that the consumer expects is: EEB*@xExP %n EFuili#rium expected #enefit should eFual expected cost: TxCDCB*@xExP if ,e assume that consumers are not charged ,ith a s,itching fee #ut s,itch for free then the eFuation is ,ritten: TxCB*@xExP *ustrian average electricity household consumer example: 7B:6euros $assumption )98 of the total household energy expenditures( ADB :386GB))':GB6')):1 8B :euros1 PB6'5 36'> $*ssumption( )B6 $changing supplier is free of charge in the *ustrian electricity mar"et( EFuation is solved: :TD6B6')):x:6x6'5$not so optimistic( :TB5'7: TB6'=:h9month TB:'=h9year :TD6B6')):x:6x6'>$optimistic( :TB 6' ):TB6'57:h9monthTB;' h9year
    Ta#le ;: Time is a scarce resource for consumers' The average *ustrian consumer ,ill not devote more than ;' hours per year in reading comparing and s,itching #ecause of the opportunity cost involved'

    &ym#ols: ) is the charge the consumer has to pay as a fee for s,itching' 1 is the time the consumer devotes in the s,itching1 evaluating and signing activity in hours 'C is the ,age per hour that the electricity consumer ,ould gain instead of searching and is used as a 31

    Ioannis P. Papanastasopoulos (2009)

    proxy for opportunity cost' P is the consumers estimation of the pro#a#ility that his effort to find a #etter contact in the mar"et in terms of price ,ill #e successful' AD is the average percentage of discount the consumer gains signing one of the most attractive in price contracts' 7 is the amount of money the consumer is currently paying for his electricity per month' *n optimistic consumer expects a more successful result a not so optimistic consumer expects a less successful result' E) expected costs' E7 expected #enefits'

    %.#.& $he /verage /ustrian Consumer E;am1le


    T(e e:a%p'e o! Austria is (e'p!u' !or i''ustration. 32 In Austria t(e a#era)e )ross *a)e is 1$55 euros. Accordin) to t(e 255242553 Austrian =ouse(o'd Bud)et Sur#e" t(e a#era)e %ont('" (ouse(o'd?s e:penditures !or ener)" *ere 11& euros representin) t(e 2.$R o! t(e (ouse(o'd?s tota' e:penditures 7Statisti/ Austria 2553 pp1B2) T(e persona' e:penditures !or e#er" adu't 'i#in) in t(e (ouse *ere &$ euros representin) 2.&R o! t(e adu't?s tota' persona' e:penditures. 8nder t(e assu%ption t(at on'" a part o! t(is e:penditure )oes !or e'ectricit" -i''s it can -e e:pected t(at t(e actua' percenta)e !or e'ectricit" *ou'd -e 'o*er. For i''ustration purposes an assu%ption is %ade t(at t(e ener)" e:penses is 243 e'ectricit" 143 )as. T(is 'o*ers t(e e'ectricit" e:penditures $E #ills( to 35 euros representin) t(e 3R o! t(e persona' e:penditures o! t(e a#era)e Austrian adu't. At t(e sa%e "ear 72553) t(e report o! t(e Austrian co%petition aut(orit" presented a-o#e e#a'uated t(e cost sa#in) 7 @ discount) %ar)in )ained -" a potentia' supp'ierBs*itc( in so%et(in) -et*een 13RB35R o! t(e e'ectricit" -i'' 7C T + + C E 255& pp31B32). T(e Austrian e'ectricit" consu%er o! t(e e:a%p'e (as to %a/e a decision to searc( !or -etter contract or sta" capti#e. Because t(e consu%er is rationa' s(e /no*s t(at s(e can sa#e 13B35R o! (er e'ectricit" -i''s -" s*itc(in). T(e a#era)e discount $*@( t(at s(e can ac(ie#e -" s*itc(in) is t(en 22.3R. In order to )ain t(ese sa#in)s t(ou)( s(e *i'' (a#e to -e success!u' in s*itc(in) and !ind a )ood o!!er i! not t(e -est. On t(e ot(er (and s(e /no*s t(at s(e (as to under)o so%e
    32

    Austria is se#ent( in 06, per capita in European 8nion and !ort( in co%parison to t(e ot(er ear'" 'i-era'i9ation countries 7si: in tota') 7T(e Eor'd Ban/ Eor'd 6e#e'op%ent Indicators data-ase 255&: (ttp:44siteresources.*or'd-an/.or)46ATASTATISTICS4+esources406,.pd! and (ttp:44siteresources.*or'd-an/.or)46ATASTATISTICS4+esources4,O,.pd! Moreo#er it (as t(e si:t( -est score in t(e corruption perception inde: in E8 and t(ird a%on) t(e ear'" 'i-era'i9ed %ar/ets 7Transparenc" Internationa' Corruption ,erception Inde: 255&). Bein) a de#e'oped countr" -ut not in an e:tre%e o! neit(er corruption nor 06, )i#es t(e a-i'it" to )enera'i9e to so%e e:tend !ro% its case stud".

    32

    Ioannis P. Papanastasopoulos (2009)

    e:penses in ter%s o! opportunit" costs. T(e 2552B2553 Austrian consu%er can potentia''" sa#e &.3 N 13 euros per %ont( B11.3 euros on a#era)eB !ro% (is e'ectricit" -i'' $this is *@xE(. S(e needs t(ou)( to searc( !or (ours to !ind t(e -est price t(en contact t(e ne* supp'ier and *ait !ro% 3B; *ee/s unti' t(e !irst da" o! t(e proceedin) %ont( to (a#e (is supp'ier !ina''" c(an)e 7E+0E0 Consu%er S*itc(in) +eport 2553 pp1;). 6ue to e'ectricit" price #o'ati'it" t(is can (appen %ore t(an once per "ear so t(at t(e Austrian consu%er can en1o" constant'" one o! t(e -est contracts in t(e %ar/et. At t(e ri)(t side o! t(e e@uation it is t(e a#era)e )ain e:pected !ro% a s*itc( %u'tip'ied -" 12 %ont(s o! t(e "ear so t(at t(e ti%e t(at is de#oted in contract e#a'uation and s*itc(in) is esti%ated per "ear. To t(e 'e!t is t(e inco%e per (our 713euros) s(e )ains !ro% (er *or/ %u'tip'ied -" T (ours t(at de#oted in searc(in) s*itc(in) readin) t(e contracts and si)nin) a ne* one. So'#in) t(e e@uation *e !ind t(at a rationa' Austrian consu%er *i'' de#ote ..2(ours per "ear in searc(in) contractin) and s*itc(in). T(is esti%ation is -ased on t(e assu%ption t(at s(e e:pects (er searc(in) to -e per!ect'" success!u'. But t(is is not certain. 6ue to 'ac/ o! o!!ers? and contractua' c'auses? transparenc" t(ere is t(e pro-a-i'it" , t(at t(e consu%er *i'' e:pect to err and not to c(oose t(e -est o!!er. Eit( a %odest esti%ation and t(e , -ein) -et*een 5.$ and 5.. t(e consu%er *ou'd -e read" to spend 3.2 to ;.1 (ours per "ear. T(e ti%e is rat(er 'i%ited and re!ers to t(e a#era)e consu%er. Eorse paid consu%ers or consu%ers t(at spend %ore %one" in e'ectricit" consu%ption *i'' de#ote %ore ti%e.33 On t(e ot(er (and -etter paid consu%ers *i'' de#ote 'ess ti%e. Conse@uent'" !ro% an econo%ic perspecti#e si)nin) a contract *it(out readin) its price re'ated c'auses care!u''" or sta"in) in an ine!!icient contract *it( t(e incu%-ent cou'd -e 7o!ten is) a #er" rationa' c(oice -" t(e a#era)e Austrian (ouse(o'd consu%er. T(at stands e#en i! s(e (ad one o! t(e *orse contracts in t(e %ar/et and t(e discount %ar)in *as 22.3R. It is t(us in %an" cases a rationa' -e(a#ior !or t(e (ouse(o'd e'ectricit" consu%ers to uti'i9e routines and ru'es o! t(u%- in t(eir e!!ort to econo%i9e t(eir scarce ti%e and co)niti#e resources. As G. E/ and ,. Soder(o'% point consu%ers in suc( conditions *i'' %a/e decisions t(at are on'" satis!actor". Searc(in) !or t(e -est o!!er and contract in t(e %ar/et is too e:pensi#e !or t(e% 7G. E/ and ,. Soder(o'% 255; p)233). An opti%a' decision %a/in) is t(us not e:pected -" e'ectricit" consu%ers *(en it co%es to e#a'uatin) contracts. T(e e:p'anation !ro% an econo%ic perspecti#e is si%p'e. As 'on) t(e e'ectricit" -i''s represent on'" a s%a'' !raction o! t(e consu%er?s (ouse(o'd e:penditures t(e consu%er *i''
    33

    T(is partia''" e:p'ains t(e 'ar)er s*itc(in) percenta)e in Nordic countries. E'ectricit" e:penditures represent a 'ar)er portion o! t(e (ouse(o'd -ud)et due to (i)( s(ares o! e'ectric (eatin). T(is #ie* is a'so s(ared -" OEC6 2553 report 7OEC6 2553 p)113).

    33

    Ioannis P. Papanastasopoulos (2009)

    e:pect on'" a s%a'' i%pro#e%ent in (er inco%e !ro% a supp'ier s*itc(in). T(ere!ore t(e consu%er *i'' not in#est too %uc( in e#a'uatin) t(e content o! t(e #arious contract o!!ers. A (ouse(o'd e'ectricit" consu%er t(at in#est a 'ot o! ti%e and e!!ort in readin) contracts and o!!ers 7especia''" t(e non price ter%s) %a" !ound (erse'! in a situation t(at (as spent a 'ot *it( a 'o* return on (er in#est%ent. As 'on) t(e searc(in) opportunit" s*itc(in) and si)nin) costs are co%para-'e to t(e e:pected -ene!its !ro% s*itc(in) t(e consu%er *i'' sta" in supp'" contract *it( t(e incu%-ent supp'ier and %a" not s*itc( at a''. Fo''o*in) t(is reasonin) -ot( consu%er inertia and contractin) a 'ess e!!icient supp'ier are rationa'. On t(e ot(er (and t(e e'ectricit" e:penditures represent a 'ar)e portion o! t(e %ediu% and 'ar)e industria' consu%ers? e:penses. An industria' consu%er o! t(is si9e (as 'ar)er incenti#es to %a/e a %ore in dept( e#a'uation o! t(e #arious o!!ers in t(e %ar/et. In addition (a#in) a 'ar)e a%ount o! e'ectricit" consu%ption o!ten )i#es t(e% o'i)opson" po*er. Ta/in) t(ese !acts into account it is not a surprise t(at industria' consu%ers s*itc( %ore o!ten 7%ore t(an 35R) and en1o" -etter e'ectricit" pri9es and contract c'auses t(an t(e (ouse(o'd and s%a'' -usiness consu%er o! t(e sa%e countr" 7OEC6 2553 p)113). T(is e@uation (ere is used in order to e#a'uate t(e ti%e de#oted -" a consu%er in (er e!!ort to !ind -etter price ter%s. T(e sa%e %ode' can a'so -e used !or esti%atin) t(e ti%e de#oted !or readin) and co%parin) t(e non price ter%s -et*een contractua' o!!ers in t(e %ar/et. As ana'"9ed in su-section 3.3.2 readin) and understandin) non price ter%s is %ore di!!icu't and t(us %ore ti%e de%andin) t(an readin) and understandin) price re'ated ter%s in t(e e'ectricit" contracts. Moreo#er it is !ar %ore di!!icu't 7in ter%s o! consu%er?s sop(istication) and !ar %ore cost'" 7in ter%s o! opportunit" cost) to read and econo%ica''" appreciate t(e #a'ue o! eac( non price re'ated contract c'auses. T(ere!ore t(e a#era)e Austrian consu%er is e:pected to spend %uc( %ore ti%e and e!!ort i! (er e#a'uation e:pands to t(e non price re'ated contract content *(ic( is decisi#e !or t(e contract @ua'it" since %ost o! t(e un!air and4or ine!!icient c'auses are !ound t(ere. O! course t(is %ode' (as a %ain 'i%itation. It on'" esti%ates t(e ti%e t(at an a#era)e consu%er *i'' de#ote in readin) and e#a'uatin) contracts in e@ui'i-riu% *it( (er opportunit" cost. It %ain'" s(o*s t(at ti%e is a scarce resource. Since t(e e:penditures !or e'ectricit" represent a s%a'' !raction o! t(e (ouse(o'd e:penditures a rationa' consu%er *i'' not spend %uc( ti%e in readin) and co%parin) contracts. Bein) rationa' a consu%er *i'' tr" to e@ua'i9e (er opportunit" costs *it( t(e e:pected discount. T(e sa%e stands !or nonBprice ter%s t(e consu%er *i'' tr" to e@ua'i9e its opportunit" cost *it( e:pected -ene!it !ro% -etter non price c'auses 7suc( as 'ia-i'it" rene*a' and 'en)t(). 6e#otin) ti%e in price ter%s 32

    Ioannis P. Papanastasopoulos (2009)

    consu%ers set co%petiti#e pressure on t(e prices %a/in) price co%petition *or/. 6e#otin) ti%e in nonBprice ter%s consu%ers are (e'pin) nonBprice co%petition to de#e'op -et*een !ir%s. T(e %ore e!!ecti#e'" t(e consu%ers are spendin) t(eir 'i%ited ti%e in readin) and t(us %onitorin) nonBprice ter%s t(e 'ess se#ere t(e Si)nin) *it(out +eadin) pro-'e% *i'' -e. T(e %ore in!or%ed consu%ers are a-out contract content t(e %ore t(e" %onitor it and t(us -etter contract @ua'it" is e:pected in t(e %ar/et. In!or%ed consu%er?s c(oice is a precondition !or s"%%etric in!or%ation -et*een %ar/et actors to -e esta-'is(ed. Ne#ert(e'ess di!!erent consu%ers in t(e sa%e %ar/et can (a#e di!!erent resu'ts *(en searc(in) !or a'ternati#e contract o!!ers e#en i! t(e" *ou'd de#ote t(e sa%e a%ount o! ti%e in t(at tas/. T(e resu't depends on t(e transaction costs in t(e %ar/et and t(e consu%ers? %aturit"Be:perience. So%e consu%ers are %ore sop(isticated and e:perienced in re'ation to t(e %ar/et %ec(anis% t(an ot(ers. Consu%ers o! t(e sa%e sop(istication in di!!erent %ar/et en#iron%ents *ou'd a'so (a#e di!!erent resu'ts. T(e transaction costs t(at t(e consu%ers !ace and contract transparenc" t(e" con!ront are not t(e sa%e in e#er" %ar/et. Ne#ert(e'ess aut(orities can (e'p co%petition in contract @ua'it" -" (e'pin) t(e consu%ers to -e %ore e!!icient in t(eir e!!ort to ac@uire in!or%ation a-out t(e @ua'it" o! price and non price contract c'auses usin) t(eir 'i%ited ti%e. T(is can -e ac(ie#ed -" o-'i)ator" in!or%ation disc'osure t(rou)( contracts -" %a/in) contract in!or%ation %ore accessi-'e and eas" to co%pare and -" )uaranteein) a %ini%u% c'ause @ua'it" -" re)u'atin) o-'i)ator" contractua' ter%s.

    Section .: Effecti eness and Efficiency E a#uation of t+e Le"a# and $e"u#atory Fra%e&or'
    T(e European and %e%-er state 'e#e' re)u'ator" and 'e)a' !ra%e*or/ in respect to consu%er contracts (a#e -ot( -een presented in section 3. In addition t(e in!or%ation as"%%etr" i%p'ications o! t(e 'i-era'i9ed retai' %ar/et (a#e -een t(orou)('" ana'"9ed in section 3. In t(is section $ an e#a'uation o! t(e 'e)a' and re)u'ator" !ra%e*or/ is conducted -ased on t(e e!!icienc" e!!ecti#eness test -ui't in su-section 2.2. In order to ans*er t(e anci''ar" @uestions set -" t(is test it is use!u' to start -" e#a'uatin) *(et(er t(e re)u'ator" and 'e)a' !ra%e*or/s are e!!ecti#e and e!!icient in pro%otin) co%petition %ost'" -" deterrin) t(e in!or%ation as"%%etr" 7Si)nin) *it(out +eadin)) %ar/et !ai'ure in su-section $.1. T(en in su-section $.2 speci!ic consu%er protection c(oices are e#a'uated. Fina''" in su-section $.3 it is e:a%ined *(et(er t(e speci!ic 'e)a' and re)u'ator" c(oices are (e'pin) 33

    Ioannis P. Papanastasopoulos (2009)

    t(e European retai' %ar/et to -eco%e an inte)rated one. A!ter ans*erin) t(e anci''ar" researc( @uestions it *i'' -e possi-'e to proceed to conc'usions in respect to t(e %ain researc( @uestion.

    9.& E''ectiveness and e''iciency in regard to retail competition goal


    Aut(orities can (e'p consu%ers to use t(eir 'i%ited ti%e e!!icient'" in readin) e#a'uatin) and t(us %onitorin) t(e contract content. T(e" can set conditions so t(at consu%ers *i'' use t(e sa%e 'i%ited a%ount o! ti%e input and (a#e -etter resu'ts in ac@uirin) in!or%ation as an output. A *a" to ac(ie#e t(is is -" in!or%ation disc'osure. T(e supp'iers? o-'i)ation to disc'ose speci!ic in!or%ation in t(eir contracts (e'ps consu%ers to read t(e contracts and ac@uire in!or%ation !ro% t(eir content %ore easi'". Moreo#er t(e supp'iers? o-'i)ation to pu-'is( t(e contract content 7price and non price re'ated ter%s) on internet %a/es it easier !or t(e consu%ers to (a#e access to t(e contract content and to co%pare e@ui#a'ent c'auses contained in di!!erent !ir%s? o!!ers. Furt(er%ore -" re)u'atin) t(e nonBprice contract content e:c'udin) ine!!icient c'auses t(e re)u'ator (e'ps t(e consu%er to !ocus %ore on t(e rest o! t(e content and %ain'" on t(e price re'ated c'auses. First'" it is e:a%ined *(et(er t(e in!or%ation disc'osure duties as %andated in t(e European 'e#e' 'e)is'ationBre)u'ation 7Second E'ectricit" 6irecti#e and t(e T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e) and t(e %e%-er state 'e#e' re)u'ation are e!!icient and e!!ecti#e in pro%otin) co%petition.

    7.1.1 Promoting Com1etition through <nformation )isclosure )uties


    In su-section 3.1.1.c t(e disc'osure duties %andated -" t(e Second E'ectricit" 6irecti#e and t(e TE, %andated *ere presented. T(e !irst i%pression t(at t(e reader o! t(e t*o directi#es (as is t(at t(e 'ist o! t(e %ini%u% disc'osure duties is too e:tensi#e and too detai'ed. Speci!ica''" t(e in!or%ation disc'osure duties co#er at 'east t(e identit" and address o! t(e supp'ier t(e ti%e o! initia' connection t(e t"pe and t(e @ua'it" o! t(e ser#ices pro#ided t"pe o! %aintenance o!!ered in!or%ation a-out t(e %aintenance c(ar)es and tari!!s t(e duration and t(e rene*a' o! t(e ser#ices and o! t(e contract t(e e:istence o! an" ri)(t o! *it(dra*a' !ro% t(e contract t(e e:istence o! an" co%pensation !or 'o* @ua'it" and t(e e:istence o! an" dispute reso'ution procedure 7Second E'ectricit" 6irecti#e 2553 Anne: A para)rap( a). T(e in!or%ation duties set are t(irteen in nu%-er and can -e #ie*ed as 3$

    Ioannis P. Papanastasopoulos (2009)

    rat(er detai'ed. T(e %easure at !irst si)(t see%s disproportiona' and t(e o-1ecti#e pursuit *it( it is not #er" c'ear. 9.&.&.a Disclosure through )ontracts E''ectiveness o' the Measure A!ter t(e econo%ic approac( in t(e pre#ious section 3 and speci!ica''" su-section 3.3 t(e o-1ecti#e pursuit is c'ear. T(e European 'e)is'atorBre)u'ator pro%otes e'ectricit" consu%ers in!or%ed c(oice -" settin) e:tensi#e in!or%ation disc'osure duties. T(e 'ist o! t(e t(irteen duties 'isted a-o#e is re!errin) to t(e %ost i%portant e'e%ents and c'auses o! an e'ectricit" contract. T(e European directi#es %a/e sure t(at t(e in!or%ation concernin) t(e %ost i%portant e'e%ents o! an e'ectricit" a)ree%ent are !ound in t(e s%a'' consu%er contracts and are presented in an inte''i)i-'eBtransparent *a". Moreo#er t(e Second E'ectricit" 6irecti#e and t(e TE, are pro%otin) t(e in!or%ed c(oice -" re@uirin) t(at t(e consu%er *i'' (a#e access to t(e in!or%ation 'isted a-o#e prior to t(e conc'usion o! t(e contract 7Second E'ectricit" 6irecti#e 2553 Anne: A para)rap( -). B" pro%otin) t(e consu%ers in!or%ation and conse@uent'" t(e in!or%ed c(oice t(e European re)u'ationB 'e)is'ation is deterrin) t(e in!or%ation as"%%etr" -et*een supp'iersBcontract dra!ters and t(e e'ectricit" consu%ers. T(us t(e e:tensi#e and detai'ed in!or%ation disc'osure is not disproportiona'. T(e o-1ecti#e is c'ear 7in!or%ed e'ectricit" consu%ers) and t(e %easure used is tar)etin) direct'" to t(is. T(e disc'osure?s e:tensi#e and detai'ed c(aracter is e%p'o"ed to secure its e!!ecti#eness as a %easure. A reader ac@uainted *it( 'e)a' studies *ou'd e:pect as consu%er protection a detai'ed 'ist o! ri)(ts t(at consu%ers (a#e and can oppose to t(e supp'iers. Instead o! t(is t(e directi#e !ocuses %ost'" in in!or%ation disc'osure duties. In section 3 it *as s(o*n t(at in!or%ation as"%%etr" due to transaction and opportunit" costs are t(e %ain o-stac'es !or -etter contract @ua'it" and t(e conse@uent 7price and non price) co%petition -et*een contract o!!ers. A't(ou)( it is rat(er surprisin) t(at consu%er protection 7stricto sensu) %ost'" consists o! an in!or%ation disc'osure duties 'ist !ro% an econo%ic ana'"sis perspecti#e it is a %ost rationa' 'e)is'ature and re)u'ator" c(oice. It is a rationa' c(oice t(at is per!or%ed in an e!!ecti#e *a"F t(e duties are %an" in nu%-er detai'ed and t(e" co#er t(e %ain !ie'ds o! an e'ectricit" supp'" a)ree%ent. T(ere!ore disc'osure duties can -e dee%ed as an e!!ecti#e %easure in deterrin) t(e Si)nin) *it(out +eadin) pro-'e%. 9.&.&./ Disclosure through )ontracts E''iciency o' the Measure 3&

    Ioannis P. Papanastasopoulos (2009)

    T(e c(oice !or in!or%ation disc'osure is not on'" an e!!ecti#e one -ut a'so an e!!icient one. S"%%etric in!or%ation -et*een supp'iers4contract dra!ters and consu%ers is t(e t(ird necessar" re@uire%ent !or co%petiti#e %ar/et to -e ,areto e!!icient. I! %ar/et su!!ers !ro% in!or%ation as"%%etr" pro-'e%s suc( as t(e Si)nin) *it(out +eadin) pro-'e% t(e co%petiti#e %ar/et *i'' not reac( in an e@ui'i-riu% t(at *i'' -e opti%a''" a''ocati#e e!!icient 7B. =er%a'in A. Gat9 U +. Cras*e'' 255$ p)1&). T(ere!ore s"%%etric in!or%ation in t(e %ar/et 7or in t(e rea' *or'd as s"%%etric in!or%ation as possi-'e) is a re@uire%ent !or 'i-era'i9ation and introduction o! co%petition to *or/. In!or%ation disc'osure duties can (e'p t(e %ar/et to reac( a %ore a''ocati#e e!!icient e@ui'i-riu%. But not e#er" sort o! in!or%ation can -e c(eap'" ac@uired or c(eap'" disc'osed. T(us Sc(o'ars 'i/e Gron%an and Gat9 su))est t(at in!or%ation disc'osure duties s(ou'd -e set at 'east !or t(e in!or%ation t(at is easi'" and c(eap'" ac@uired 7B. =er%a'in A. Gat9 +. Cras*e'' 255$ p)$3). Indeed t(e disc'osure duties set -" Anne: A re!er to in!or%ation t(at t(e supp'ier dra!ter can easi'" and c(eap'" ac@uire. T(e !irst ten duties re!er direct'" to t(e persona' c(aracteristics o! t(e supp'ier and to t(e c(aracteristics o! t(e speci!ic a)ree%ent to -e si)ned. T(e supp'ier4dra!ter can c(eap'" ac@uire t(is in!or%ation and c(eap'" trans%it t(rou)( consu%ers? contracts. Econo%ies o! sca'e t(at e:ist -ecause o! standardi9ed contracts 7SFCs) %ass production !urt(er 'o*er t(e cost !or trans%ittin) t(is in!or%ation to eac( consu%er. T(e rest t(ree o! t(e disc'osure duties na%e'" t(e e:istence o! an" ri)(t o! *it(dra*a' !ro% t(e contract t(e e:istence o! an" co%pensation !or 'o* @ua'it" and t(e e:istence o! an" dispute reso'ution procedure do not direct'" re!er to t(e speci!ic content o! t(e a)ree%ent or t(e supp'ier?s c(aracteristics. Ne#ert(e'ess supp'ier can easi'" ac@uire in!or%ation re'ated to t(ese t(ree issues. T(at is -ecause t(e supp'ier -ein) %ore sop(isticated and ac@uainted *it( t(e sector speci!ic 'e)is'ation and re)u'ation can easi'" !ind t(e re'e#ant ru'es and in!or% t(e consu%er a-out t(e% t(rou)( (is contracts. T(e in!or%ation disc'osure duties set -" t(e directi#es are a'so e!!icient in respect to t(e part" o! t(e contract t(at is o-'i)ed to ac@uire and disc'ose t(e%. As seen a-o#e in!or%ed c(oice is a necessit" !or actua' co%petition to esta-'is( in t(e e'ectricit" retai' %ar/et. T(ere!ore one o! t(e parties 7supp'ier4dra!ter or consu%er) (as to under)o t(e re'e#ant in!or%ation costs in#o'#ed as a condition !or t(e %ar/et to -e a''ocati#e e!!icient. It is socia''" %ore e!!icient i! t(e part" t(at ac@uires t(is necessar" in!or%ation %ore c(eap'" to -e o-'i)ed *it( t(e ac@uirin) and disc'osure dut". T(is c(oice is co%pati-'e *it( t(e econo%ic ana'"sis o! contracts and contract re)u'ation. B. =er%a'in A. Gat9 and +. 3;

    Ioannis P. Papanastasopoulos (2009)

    Cras*e'' 7255$) su))est t(at in!or%ation as"%%etr" s(ou'd -e addressed -" settin) t(e -urden o! in!or%ation to t(e part" t(at can underta/e it %ore c(eap'" 7B. =er%a'in A. Gat9 +. Cras*e'' 255$ p).2). T(e supp'ier indeed can underta/e t(e -urden o! in!or%in) consu%ers a-out its persona' c(aracteristics t(an consu%ers searc(in) on t(eir o*n. In respect to t(e t(ree 'ast disc'osure duties t(at do not re'ate speci!ica''" to t(e supp'iers c(aracteristics or t(e speci!ic a)ree%ent t(e supp'ier can a'so under)o t(ose e:penses %ore c(eap'". T(e supp'ier ac@uires t(is in!or%ation once and t(en trans%its it to eac( consu%er. I! t(e consu%ers *ere to ac@uire t(is in!or%ation on t(eir o*n t(e tota' socia' cost *ou'd -e (u)e. Eac( one consu%er can ac@uire t(is in!or%ation %ore e:pensi#e'" t(an t(e supp'ier does and consu%ers are %uc( %ore t(an supp'iersF eac( indi#idua' consu%er in!or%ation e:penses (a#e to -e %u'tip'ied -" t(e nu%-er o! consu%ers in order to esti%ate t(e tota' socia' e:penses. T(e pro#isions o! Anne: A are t(us are econo%ica''" e!!icient in t*o *a"s: First'" t(e disc'osure duties set re!er to i%portant in!or%ation !or in!or%ed c(oice to -e ac(ie#ed -ut at t(e sa%e ti%e in!or%ation t(at is c(eap to ac@uire and disc'ose. Second'" t(e part" t(at is o-'i)ed to disc'ose is t(e part" t(at can under)o t(e costs o! ac@uirin) t(e in!or%ation %ore c(eap'": t(e supp'ier. 9.&.&.c Disclosure through Pu/lishing on 8e/sites and 7ills Anot(er t"pe o! in!or%ation disc'osure is t(e supp'iers? o-'i)ation to pu-'is( consu%er ri)(ts and contract content t(rou)( t(eir -i''in) or t(rou)( *e-sites. T(is t"pe o! disc'osure (e'ps e'ectricit" consu%ers to (a#e -etter resu'ts usin) t(eir 'i%ited searc(in)Be#a'uatin)B si)nin) ti%e. T(e contract content and t(e in!or%ation concernin) t(eir ri)(ts are %ore accessi-'e to consu%ers. Accessi-i'it" 'o*ers t(e opportunit" costs t(at consu%ers under)o *(en searc(in) !or a'ternati#e contract o!!ers and t(eir re'e#ant ri)(ts. ,u-'is(in) in!or%ation in t(e *e- is not a ne* practice -ut it *as %ost'" !ocused to t(e price re'ated contract content. Aut(orities and consu%er -odies (a#e used t(is practice in order to (e'p consu%er ac@uirin) in!or%ation concernin) a'ternati#e o!!ers in t(e %ar/et. Ener)" Eatc( in 8G t(e Eatc( 6o) ser#ice o! t(e N+As EBcontro' site in Austria t(e S*edis( Consu%ers? A)enc" in S*eden t(e co%petition aut(orit" in Nor*a" in Fin'and and 6en%ar/ t(e indi#idua' retai'ers or t(eir associations are responsi-'e !or pro#idin) t(is in!or%ation re'atin)Ba%on) ot(ersB to prices to consu%ers. 3.

    Ioannis P. Papanastasopoulos (2009)

    T(e TE,?s E'ectricit" 6irecti#e Anne: A sets a ne* onB'ine pu-'is(in) o-'i)ation o! t(e in!or%ation t(at re'ates to t(e disc'osure duties 7T(ird Ener)" ,ac/a)e E'ectricit" 6irecti#e Anne: A para)rap( a). T(e contract content and consu%er ri)(ts onB'ine pu-'is(in) o-'i)ation *as not set -" t(e Second E'ectricit" 6irecti#e?s pro#isions. T(is %easure si)ni!icant'" 'o*ers t(e ti%e t(at a consu%er needs to )at(er contract o!!er in!or%ation #ia t(e *e- and co%pare it !ina''" si)nin) !or t(e -est o!!er in t(e %ar/et. Eit( si)ni!icant'" 'o*er opportunit" costs !or t(e consu%er s"%%etric in!or%ation is pro%oted in t(e %ar/et -et*een supp'iers and consu%ers and conse@uent'" t(e Si)nin) *it(out +eadin) pro-'e% is !urt(er deterred. In!or%ation pu-'is(in) t(rou)( internet t(ou)( can not -e used -" e#er" consu%er. Not e#er" consu%er (as access or is a-'e to use t(e *e-. Ne#ert(e'ess %ost o! t(e European consu%ers are no* to so%e e:tend !a%i'iari9ed *it( t(e use o! internet. T(e ar)u%ent t(at ac@uirin) in!or%ation #ia t(e *e- is a tas/ t(at on'" sop(isticated consu%ers can per!or% does not stand toda" as it *ou'd ten "ears a)o. T(ere!ore t(is a%end%ent o! anne: A t(at t(e TE,?s E'ectricit" 6irecti#e introduces is a #a'ua-'e addition to consu%ers? *eapons in t(eir !i)(t !or ac@uirin) contract content in!or%ation in t(e 'i-era'i9ed e'ectricit" supp'" %ar/et.

    7.1.2 S1ecific Contract Content Regulation


    T(e European Le#e' re)u'ationB'e)is'ation see%s to !o''o* a t(ou)(t!u' approac( to consu%er protection and contract @ua'it" re)u'ation in t(e e'ectricit" retai' %ar/et. T(e c(oice o! t(e European 'e#e' re)u'atorB'e)is'ator is t(rou)( in!or%ation disc'osure Cto teac( consu%ers to !is(D in t(e co%petiti#e %ar/et !or a )ood contract o!!er t(at suits t(e% %ost. T(e 6irecti#es do not !eed 1ust !eed *it( e:tensi#e paterna'istic stricto sensu consu%er protection and o#erre)u'ation o! t(e contract content. T(e European 'e)is'atorBre)u'ator re'ies a 'ot on t(e co%petition and t(e consu%ers in!or%ed c(oice as a natura' protection s(ie'd !or consu%ers and as cata'"sts !or contract @ua'it" a%e'ioration. In t(e !ie'd o! contract !airness and transparenc" t(e 6irecti#es restrict t(e%se'#es in )enera' dec'arations t(an speci!ic c(oices. On t(e ot(er (and as seen in section t(ree t(e %e%-er state re)u'ators (a#e adopted sector speci!ic re)u'ation and %easures. B" 255& on'" Austria and C9ec( +epu-'ic did not adopt sector speci!ic re)u'ation in re)ards to consu%er contracts and consu%er protection.

    $5

    Ioannis P. Papanastasopoulos (2009)

    9.&.% E''ectiveness o' Mem/er State )ontract )ontent +egulation in regard to the )ompetition !/ ective As seen in ta-'es 1 and 2 t(e %e%-er state re)u'ator" aut(orities (a#e adopted speci!ic ru'es in re)ard to e'ectricit" s%a'' consu%ers? contracts. In ta-'e t*o t(e re)u'ator" c(oices t(at aut(orities (a#e adopted !or %andator" c'auses in contracts are presented. T(e European %e%-er state aut(orities (a#e in o#er*(e'%in) %a1orit" adopted speci!ic ru'es in respect to t(e consu%er e'ectricit" contracts 7e.). contract ter%ination). In %ost o! t(e cases as i''ustrated in t(e ta-'e 1 t(e %e%-er states (a#e introduced t(ese ru'es *it( sector speci!ic act and re)u'ation. T(is t"pe o! re)u'ation can -e considered as rat(er intrusi#e !or t(e contractin) !reedo% o! t(e parties and rat(er protecti#e !or t(e consu%ers. It is t(ou)( necessar" at 'east !or t(e ear'" period o! 'i-era'i9ation. As a!ore%entioned e'ectricit" consu%ers are 'ar)e'" ine:perienced in co%parin) and e#a'uatin) a'ternati#e contract o!!ers. T(ere!ore it is use!u' to e%p'o" a rat(er protecti#e !or t(e consu%ers re)i%e at 'east !or t(e transition period -et*een %onopo'" and co%petition unti' t(e" -eco%e %ore e:perienced in ac@uirin) in!or%ation !ro% contracts and in e:ercisin) in!or%ed c(oice. O! course a'' t(e consu%ers are not o! t(e sa%e sop(istication and o! t(e sa%e /no*'ed)e concernin) to t(e %ar/et %ec(anis%?s !unction. Consu%ers in %ar/ets 'i/e t(e Nordics and t(e 8G are e:pected to (a#e %o#ed *a" do*n t(e e:perience cur#e in respect to per!or%in) t(eir ro'e in a 'i-era'i9ed %ar/et. Consu%ers in %ar/ets t(at (a#e -een recent'" opened %a" need %ore protection durin) t(eir !irst steps in t(e 'i-era'i9ed 'andscape. T(ere is not %uc( need !or protectin) e'ectricit" consu%ers o! t(e %ature retai' %ar/ets co%petition in price and non price ter%s o! t(e contracts *or/s as a !or% o! natura' s(ie'd !or t(e%. As it is s(o*n #arious ti%es in t(is paper European e'ectricit" %ar/ets are in %an" di!!erent sta)es o! 'i-era'i9ation. So%e are %ature *(i'e so%e are in transition period and so%e (a#e 1ust introduced co%petition in t(e retai' %ar/et at t(e sa%e ti%es %onopo'ies sti'' sur#i#e as %ar/et structure. Conse@uent'" it see%s t(at it is a European 'e#e' re)u'ator?s de'i-erate c(oice to re!rain !ro% esta-'is(in) a panBEuropean o#erprotectin) re)i%e !or e'ectricit" consu%ers. T(e European re)u'ator restricted 1ust in settin) t(e in!or%ation disc'osure duties a sc(e%e t(at is re'ati#e'" c(eap and eas" to en!orce and at t(e sa%e ti%e not to intrusi#e to contractin) !reedo% o! t(e parties. T(e European directi#es 'et nationa' re)u'ators to adopt t(e sector speci!ic %easures t(at suit t(e needs and t(e %aturit" o! eac( %ar/et and t(e sop(istication o! its consu%ers. $1

    Ioannis P. Papanastasopoulos (2009)

    O!ten nationa' aut(orities re)u'ate t(e contract content settin) speci!ic o-'i)ator" standard ter%s 7rene*a' duration 'ia-i'it"). 6i!!erentiation !ro% t(e %andated standard ter%s is not per%itted. T(us t(e contract c'auses t(at do not co%p'" *it( t(e sector speci!ic ru'es are dee%ed as un!air. T(e contract content re)u'ation !irst'" )uarantees a certain 'e#e' o! contract @ua'it" !or t(e consu%ers and second'" pro%otes price co%petition. A rationa' consu%er *(o /no*s t(at t(e contract content is re)u'ated *i'' de#ote 'ess ti%e readin) t(e contract c'auses t(at are re)u'ated -" t(e sector or co%petition aut(orit". T(at is -ecause t(e sector speci!ic re)u'ation o! un!air c'auses in e'ectricit" contracts )uarantees to so%e e:tent a certain c'ause @ua'it". =a#in) a certain 'e#e' o! @ua'it" )uaranteed a rationa' consu%er *i'' de#ote 'ess ti%e readin) and %onitorin) t(at c'ause -ecause t(e -ene!it %ar)in o! !indin) a -etter one is s%a'' and does not *ort( t(e ti%e 7and t(us opportunit" cost) in#est%ent. T(us consu%ers *i'' !ocus t(eir ti%e in readin) and e#a'uatin) t(e non re)u'ated part o! t(e contract. T(e re)u'ation o! t(e un!air non price contract c'auses *i'' a'so (e'p t(e consu%er to de#ote %ore ti%e in t(e price re'ated c'auses. T(is pro%otes price co%petition -et*een retai'ers -ecause t(e consu%er *i'' de#ote (er ti%e %ost'" in readin) e#a'uatin) and co%parin) t(e prices a#ai'a-'e in t(e %ar/et. 9.&.%./ )oncerns on who En'orces the )ontract )ontent +egulation 6e0eest points out 72552) t(at e#en t(e %ost e!!icient contractua' ter% is o! 'i%ited #a'ue and e!!icienc" i! it is not en!orced e!!ecti#e'" 70. 6e0eest 2552 end o! t(e paper). In respect to t(e en!orce%ent o! t(e re)u'ated contractua' c'auses and in )enera' t(e re)u'ated e'ectricit" content t(e second e'ectricit" directi#e did not %andate an o-'i)ation !or t(e %e%-er states to adopt a sector speci!ic dispute sett'e%ent. As seen in ta-'e one -" t(e end o! 255; on'" a !raction o! %e%-er states (ad esta-'is(ed sector speci!ic dispute reso'ution procedure. A sector speci!ic reso'ution procedure )uarantees !irst'" t(at t(e ru'es re)u'atin) t(e contract content *i'' -e en!orced and interpreted -" re!ereesBe:perts in t(e !ie'd and second'" t(at it *i'' -e en!orced s*i!t'". =a#in) t(ose c(aracteristics t(e sector speci!ic dispute sett'e%ent can pro#e @uic/ in resu'ts and interpret t(e re)u'ation in a *a" t(at %eets t(e %ar/et needs. A't(ou)( t(e decisions o! t(ose -odies are not !ina' and -indin) t(e e:perience s(o*s t(at t(e" are rat(er e!!ecti#e and consu%ers are p'eased *it( t(e resu'ts. 3$ T(e %e%-er states t(at did not set a sector speci!ic dispute sett'e%ent %ec(anis% re'" on
    3$

    In t(e 255; 8G Ener)" O%-uds%an report s(o*s o#era'' ;5R consu%er satis!action !ro% t(e institution and $5B$3R o#era'' satis!action *it( t(e dispute sett'e%ent resu'ts 7Ener)" Supp'" O%-uds%an: Custo%er Satis!action 255; pp1$ 35)

    $2

    Ioannis P. Papanastasopoulos (2009)

    )enera' consu%er dispute %ec(anis%s or direct 1udicia' re#ie* o! t(e disputes concernin) e'ectricit" contract content. Accordin) to +. Ba'd*in and M. Ca#e 1udicia' contro' (as so%e ad#anta)es as !airness and transparenc". On t(e ot(er (and due to t(e !act it is e: post it is not updated *it( t(e conte%porar" needs o! t(e %ar/et. In addition court decisions 'ac/ coordination and t(us are not e:pected to 'ead to t(e adoption o! a dura-'e !ra%e*or/ o! ru'es. Moreo#er 1ud)es 'ac/ t(e re'e#ant e:pertise and t(us t(eir decisions are rat(er 'e)a'istic and cannot e:a%ine issues !ro% an econo%ic perspecti#e. Fina''" 1udicia' re#ie* -ein) -" nature e: post %ost'" reacts to t(e re)u'ateeIs -e(a#ior rat(er t(an p'ans !or t(e industr" 7+. Ba'd*in M. Ca#e 1... pp$; &2). Indeed t(e C T + + C E in its 255& report e:presses concerns a-out t(e 1udicia' en!orce%ent o! t(e sector speci!ic re)u'ation and t(e )enera' consu%er re)u'ation t(at app'ies to e'ectricit" consu%er contracts. T*o issues are stressed out -" t(is report. First'" t(e decisions ta/en -" courts #ar" !ro% state to state and are e#en contradictor" *it(in t(e sa%e %e%-er state. T(is se)%entation (as -een ana'"9ed in su-section 3.2.1 and is i''ustrated in ta-'e 2.T(e second and %ost i%portant issue stressed out is t(e de'a" o! t(e court decisions. Courts can de'a" e#en !or one "ear -e!ore %a/in) a decision. T(is ti%e 'a) creates uncertaint" re)ardin) to *(ic( contract c'ause is dee%ed as un!air and *(ic( is not. In t(e %ean*(i'e supp'iers4contract dra!ters do not /no* *(ic( c'auses are per%itted to -e dra!ted in contracts and consu%ers do not /no* *(ic( c'auses are dee%ed as un!air -" t(e courts. T(e uncertaint" created -" t(ese de'a"s is a !actor t(at (inders t(e co%petition e#en -e!ore its -irt(. 8ncertaint" is !ata' !or "oun) %ar/ets 7C T + + C E 255& 12&B12;). T(e T(ird Ener)" ,ac/a)e?s E'ectricit" 6irecti#e is e:pected to c(an)e t(is re)i%e. In an a%end%ent o! t(e Second E'ectricit" 6irecti#e?s artic'e 3 t(e TE, e'ectricit" directi#e sets an o-'i)ation !or t(e %e%-er states to esta-'is( sector speci!ic dispute sett'e%ent %ec(anis%. A'so in t(e recita' 2$.a o! t(e TE,?s E'ectricit" 6irecti#e t(e dispute sett'e%ent -odies set -" t(e aut(orities are e%po*ered no* -ein) a-'e to pursuit t(e o-1ecti#es %ore e!!ecti#e'". In an a%end%ent in Anne: A para)rap( t(e TE, sets an o-'i)ation -" t(e re'e#ant -odies to reac( to a decision pre!era-'" *it(in t(ree %ont(s. T(e introduction o! t(ese ne* %easures !urt(er e%po*ers t(e ro'e and e!!ecti#eness o! t(e dispute sett'e%ent. T(e @uic/ and e:pert decisions to *(ic( t(ese -odies can reac( *i'' deter t(e uncertaint" a-out t(e actua' e:istin) ru'es in t(e !ie'd o! e'ectricit" contract re)u'ation. A court decision %a" sti'' -e desired -ut as an appea' to t(e decisions o! t(e dispute sett'e%ent -odies. T(e $3

    Ioannis P. Papanastasopoulos (2009)

    1ud)es can reac( to -etter decisions consistent *it( t(e needs o! t(e %ar/et i! t(e" are a-'e to consu't dispute sett'e%ent decisions %ade -" an e:pert -od".

    9.% E''ectiveness and E''iciency in +egard to )onsumer Protection .oal


    Co%petition itse'! and %easures t(at !aci'itate it !unction protecti#e'" !or t(e e'ectricit" consu%ers. As ana'"9ed in t(e pre#ious su-section t(e European 'e#e' contract re)u'ation %ost'" (e'ps t(e consu%er to 'earn %a/in) t(eir o*n *a" in t(e 'i-era'i9ed %ar/et rat(er t(an c(oosin) a paterna'istic !or% o! protection. Ne#ert(e'ess t(e consu%er protection )oa' is not approac(ed on'" t(rou)( t(e !aci'itation o! co%petition. T(ere so%e speci!ic %easures t(at are e%p'o"ed to t(is direction in t(e Second E'ectricit" 6irecti#e and in t(e T(ird Ener)" ,ac/a)e. T(e %ost i%portant and inno#ati#e o! t(e% are e#a'uated (ere. T(e !irst inno#ation is t(e esta-'is(%ent o! t(e dispute sett'e%ent -odies. T(e Second E'ectricit" 6irecti#e did not set an" o-'i)ation *(i'e t(e TE, sets an o-'i)ation !or s*i!t and e!!ecti#e sector speci!ic dispute sett'e%ent. T(us a'' t(e %e%-er states t(at did not "et opt !or t(is so'ution are no* o-'i)ed to do so. T(is issue (as -een e#a'uated !ro% an e!!ecti#eness to co%petition )oa' approac(. Concernin) t(e consu%er protection )oa' t(e dispute sett'e%ent -odies (e'p t(e consu%ers to (a#e a @uic/ so'ution !or t(eir pro-'e%s. I! it is ta/en into account t(at e'ectricit" is an unsu-stituta-'e co%%odit" and t(at a %odern (ouse(o'd cannot do *it(out e'ectricit"3& s*i!tness in so'utions is i%portant !or consu%ers. T(e ne* 'e)is'ation -ot( Second E'ectricit" 6irecti#e and t(e T(ird Ener)" ,ac/a)e potentia''" a*ards t(e s%a'' -usiness consu%ers *it( protection t(at unti' no* on'" t(e (ouse(o'd consu%ers en1o"ed. T(e 8n!air Ter%s 6irecti#e as a'read" ana'"9ed protects on'" t(e traditiona' Cconsu%ersD !or e'ectricit" t(ese are on'" t(e (ouse(o'd consu%ers. T(us under t(e pre#ious re)i%e s%a'' -usiness consu%ers t(at did not present an" specia' sop(istication or specia' incenti#es to read t(e contracts re%ained unprotected. T(is #ie* o! t(e -usiness peop'e as sop(isticated and o%niscient is not s(ared -" -e(a#ioura' econo%ics? ana'"sis nor is pro#en -" e%pirica' e#idence. Indeed Andre* +o-inson presents an e:tensi#e 'ist o! e%pirica' e#idence t(at s(o* t(at -usiness peop'e 7pro-a-'" *it( t(e e:ception o! 'ar)e do''ar purc(asers and #endors) do not read nor understand t(e content o!
    3&

    E'ectricit" presents c'ose to 9ero price e'asticit" !or de%and. +. La!!ert" et a' in an e:tensi#e researc( in e'ectricit" supp'" %ar/et !ound -ot( Ti%e o! 8se and nonBTi%e o! 8se e'ectricit" (ouse(o'd and s%a'' -usiness de%and responsi#eness to -e rat(er ine'astic. Speci!ica''" !or (ouse(o'd consu%ers price e'asticit" *as !ound to #ar" !ro% 5.2 in t(e sort run to 5.3 in t(e 'on) run 7+. La!!ert" et a' 2551). T(ese !i)ures are rat(er e:tre%e in %a)nitude and %a/e e'ectricit" one o! t(e %ost unresponsi#e to price co%%odities. Accordin) to Eurostat E'ectricit" usa)e penetration to (ouse(o'ds is no 'ess t(an 155R. 7Eurostat report on consu%ers? #ie*s on ser#ice pro#ider s*itc(in) 255. p) 2)

    $2

    Ioannis P. Papanastasopoulos (2009)

    SFCs 7A. +o-inson 2553 p) &). Especia''" *(en it co%es to e'ectricit" SFCs s%a'' -usiness e'ectricit" consu%ers are as #u'nera-'e to un!air and ine!!icient ter%s as residentia' 7(ouse(o'd) consu%ers. E#en under t(e traditiona' 'e)a' #ie* t(at t(e un!air ter%s is a resu't o! %ar/et po*er it can not -e c'ai%ed t(at t(e s%a'' -usiness e'ectricit" consu%ers presented an" si)ni!icant %ar/et po*er co%pared to (ouse(o'd consu%ers. A ne*spaper retai'er or a con#enient store o*ner does not di!!erentiate !ro% (ouse(o'd consu%er in consu%ption incenti#es sop(istication or ne)otiation po*er *(en contractin) !or e'ectricit" supp'". T(ere!ore t(e parado: occurred t(at t(e sa%e person *as protected *(en -u"in) e'ectricit" !or (ouse(o'd consu%ption *(i'e not protected *(en -u"in) e'ectricit" !or (er s%a'' -usiness consu%ption. In France !or instance consu%er protection in re'ation to e'ectricit" contracts (as -een repeated'" denied to s%a'' -usiness o*ners. In a decision o! court o! Appea's o! Bour)e a dair" store *as denied t(e protection o! un!air ter%s 'a* -ecause it did not !a'' in t(e scope o! consu%er de!inition 7Arret de 'a Cour d?Appe' de Bour)es 2341141..2). Si%i'ar decisions *ere ta/en !or t(e cases o! an e)) (atc(in) !aci'it" 7Cour 6?Appe' de 0reno-'e 1$45141..$) a s%a'' c(ic/en !ar% 7Cour 6?Appe' de +ennes 1545241..$) and a !is( -readin) -usiness 7Cour d?Appe' de ,aris 1245$41..$).3; T(e 1usti!ication )i#en to eac( one o! t(ese cases *as t(at t(e -usiness consu%ers did not s(are t(e nai#et" and #u'nera-i'it" o! t(e (ouse(o'd consu%er. As a resu't under %onopo'istic %ar/et conditions and (a#in) no c(oice -ut to contract *it( t(e e'ectricit" %onopo'ist supp'ier 7in France t(e State O*ned EdF) t(e s%a'' -usinesses *ere practica''" unprotected a)ainst un!air ter%s. ,ossi-'" t(e" cou'd %a/e use o! t(e 'a* concernin) t(e un!air co%%ercia' practices. 8nder t(e ne* 'e)is'ation to t(e e:tent t(at eac( %e%-er state decides to e:pand consu%er protection to t(e s%a'' -usiness e'ectricit" consu%ers t(e un1usti!ia-'e discri%ination -et*een (ouse(o'd and s%a'' -usiness consu%er *i'' cease to e:ist. In respect to t(e consu%er t"pes t(at are e'i)i-'e !or t(e sector speci!ic protection t(e Second E'ectricit" 6irecti#e and TE, are consistent *it( t(e econo%ic ana'"sis. T(ere is no reason to discri%inate in protection -et*een t(ese t*o cate)ories o! consu%ers. Not (a#in) an" di!!erentiation in sop(istication incenti#es to 'earn t(e contract content and %ar/et po*er an" di!!erentiation in protection is not an econo%ica''" 1usti!ia-'e one. Bot( )roups

    3;

    A!ter In@uir" in t(e 6ata-ase o! C'auses A-usi#es A#ai'a-'e !ree o! c(ar)e 7Frenc() at: (ttp:44***.c'ausesB a-usi#es.!r4uti'4inde:Srec(erc(e.(t%

    $3

    Ioannis P. Papanastasopoulos (2009)

    !ace in!or%ation as"%%etr" pro-'e%s and -ot( )roups are part o! t(e Si)nin) *it(out +eadin) pro-'e% t(at conse@uents to contract @ua'it" deterioration.

    9.- E''ectiveness and E''iciency in regard to Mar,et Integration .oal


    On t(e one (and e'ectricit" consu%er contracts re)u'ation is a necessit". On t(e ot(er t(e *a" it *as i%p'e%ented (as an i%pact to t(e %ar/et inte)ration )oa'. Mar/et inte)ration in a sin)'e European e'ectricit" %ar/et as pointed out -e!ore in t(is researc( is one o! t(e t(ree e:p'icit'" stated e'ectricit" %ar/et re!or%?s )oa's. 6i!!erentiation in %e%-er states in respect to di!!erent e:istin) 'a* and adopted re)u'ation can (inder t(e process o! %ar/et inte)ration. T(is paper (as so !ar presented an e:tended ana'"sis o! t(e re)u'ator" c(oices t(at #arious %e%-er sates (a#e adopted. T(e di!!erentiated i%p'e%entation t(at app'ies to t(e !ie'd (as -een co%%ented and t(e %e%-er state 'e#e' !ra)%entation o! t(e e:istin) ru'es and se)%entation o! t(e re)u'ator" !ra%e*or/s (as -een stressed out. In t(is su-section t(e conse@uences t(is !ra)%entation (as on t(e %ar/et inte)ration )oa' !ro% an econo%ic perspecti#e are an'"9ed. Moreo#er t(e concerns rose a-out t(is !ra)%entation under t(e Second E'ectricit" 6irecti#e are presented. Fina''" (ere it is e:a%ined (o* t(e T(ird Ener)" ,ac/a)e C6irecti#e Esta-'is(in) an A)enc" !or t(e Cooperation o! Ener)" +e)u'atorsD tries to dea' *it( t(is pro-'e% and to *(at e:tend re)u'ator" cooperation is pro%oted -" its pro#isions. T(e se)%entation in t(e !ie'd is 'ar)e'" e:p'ained -" t*o !actors. T(e !irst is di!!erent *a" and 'e#e' o! i%p'e%entation o! t(e 8n!air Ter%s 6irecti#e *(ic( is reco)ni9ed -" t(e proposa' !or a directi#e on consu%er ri)(ts 7COM 7255;) $12 !ina' 255; p)2). T(e second is t(e )enera' !ra)%entation o! t(e re)u'ator" c(oices as (as -een i''ustrated in section 3.2 and ta-'es one t*o t(ree and !our. T(e ne* Consu%er +i)(ts directi#e proposa' points out t(e econo%ic i%p'ication t(is re)u'ator" se)%entation (as in t(e %ar/ets t(at t(e 8n!air Contract Ter%s 6irecti#e is app'ied 7e'ectricit" retai' %ar/et is one o! t(e%). T(is !ra)%entation is considered to act !or supp'iers as a -arrier to entr" to anot(er %e%-er state?s %ar/et. Supp'iers are re'uctant to per!or% a %ar/et entr" in a %ar/et *it( di!!erentiated contract ru'es and re)u'ation t(an t(ose o! t(e do%estic one. Consu%er *e'!are is t(us reduced consu%ers (a#e !e*er a'ternati#es and t(e contesta-i'it" o! t(e %ar/et is (indered. Sector speci!ic concerns are a'so rose -" t(e +e)iona' Tec(nica' Center o! +esearc( in European Consu%ption. T(e !ra)%entation o! e'ectricit" contract re)u'ation

    $$

    Ioannis P. Papanastasopoulos (2009)

    is considered in t(is report as an o-stac'e to supp'" side %ar/et inte)ration 7C T + + C E 255& pp122B123). =o* contracts can act as suc( a -arrier in a %ar/et> Contracts are a #e(ic'e #ia *(ic( a %ar/et entr" is per!or%ed in a retai' %ar/et. 6ra!tin) a SFC is a precondition !or a !ir% in its e!!ort to per!or% an entr" in anot(er %e%-er state?s supp'" %ar/et. I! t(e contracts t(at t(e !ir% a'read" uses !or t(e do%estic %ar/et are co%p'"in) *it( t(e re)u'ator" !ra%e*or/ and t(e contract re)u'ation o! t(e !orei)n %ar/et entr" is c(eap in re)ard to contract dra!tin) e:pensesF pro-a-'" a trans'ation o! t(e e:istin) contracts o!!ered in t(e do%estic %ar/et *i'' -e enou)(. T(e %ore di!!erences !ound in t(e !orei)n %ar/ets re)u'ation t(e %ore t(e dra!tin) e:penses *i'' -e in %a)nitude. I! t(e !orei)n %ar/ets re)u'ator" en#iron%ent is si)ni!icant'" di!!erent a tota''" ne* contract %a" (a#e to -e dra!ted. T(e re'e#ant dra!tin) and ru'e in!or%ation ac@uirin) e:penses are %ar/et speci!ic in#est%ents. T(e" are %ar/et speci!ic in t(e sense t(at *(en t(e in!or%ation a-out t(e re)u'ator" 'andscape o! t(e ne* %ar/et and t(e contract dra!tin) e:penses are done t(e" can not -e reco#ered or used !or ot(er %ar/ets and purposes. T(e contract t(at is dra!ted in a *a" so t(at it is co%pati-'e *it( t(e ne* %ar/et can not -e used !or a t(ird %ar/et. As it stands !or t(e %ost o! re'ation speci!ic costs t(ese costs are a'so sun/. Once under)one t(e" can not -e reco#ered *(en t(e !ir% decides to 'ea#e t(e %ar/et. 6ra!tin) costs -ein) sun/ costs can !unction as a -arrier to entr" increase t(e ris/ in#o'#ed !or t(e supp'iersBentrants and si)ni!icant'" in!'uence %ar/et?s contesta-i'it" 7M.A. 8tton 2553 pp135B131). As suc( t(e" can act as an o-stac'e to e'ectricit" %ar/et inte)ration and esta-'is(%ent o! co%petition as *e''. In a (i)('" !ra)%ented European re)u'ator" 'andscape an e'ectricit" supp'ier *i'' (a#e to under)o a %u'tip'icit" o! dra!tin) e:penses in order to -eco%e a panBEuropean p'a"er. In eac( %ar/et t(at an entr" is per!or%ed t(e !ir% (as to under)o dra!tin) e:penses t(at do%estic !ir%s don?t (a#e to. It is an o!ten and rationa' nationa' re)u'ators? practice to adopt ru'es t(at do not ensue (ea#" co%p'iance costs !or t(e do%estic !ir%s. T(is practice is a'so co%%on in European %e%-er states? re)u'ation. Ba'd*in and Ca#e criticisin) t(e discrete i%p'e%entation o! directi#es -" %e%-er states stress out t(e i%p'ications t(at resu't !ro% t(e a!ore%entioned practice. T(is practice is considered -" t(e aut(ors as a strate)ic c(oice. T(is strate)"?s o-1ecti#e is to )i#e do%estic !ir%s a co%petiti#e ad#anta)e -" raisin) a -arrier to entr" B e.). %ini%i9in) t(e co%p'iance costs !or t(e do%estic industr" 7+. Ba'd*in M. Ca#e 1... pp 1&2B1&&). T(e !ra)%entation t(at resu'ts !ro% t(e nationa' %e%-er state?s re)u'ators practice to !a#our t(e do%estic !ir%s -" %ini%i9in) t(eir co%p'iance costs does set direct i%p'ications in respect to t(e %ar/et inte)ration )oa'. At t(e sa%e ti%e indirect i%p'ications co%e up $&

    Ioannis P. Papanastasopoulos (2009)

    concernin) t(e co%petition o-1ecti#e. T(e di!!erent sta)es o! %ar/et %aturit" and %u'ti)ear openin) (a#e -een presented in t(is paper 7see section 2 and ta-'e $). Fir%s o! t(e ear'" opened %ar/ets (a#e a #a'ua-'e e:perience in a co%petiti#e en#iron%ent and possess considera-'e econo%ic stren)t(. T(e" (a#e esta-'is(ed an e:tensi#e net*or/ o! costu%ers in t(e do%estic %ar/ets and (a#e de#e'oped inno#ati#e contracts. T(ese !ir%s are e:perienced and stron) enou)( to !inance and per!or% an entr" to a %ar/et t(at is sti'' do%inated -" %onopo'istsB)iants or o'i)opo'ies. In t(is sense do%inant e'ectricit" supp'iers (a#e %ore to !ear and co%petition (as %ore to )ain !ro% t(e -i) !orei)n !ir%s t(an !ro% t(e do%estic !rin)e !ir%s.3. In %an" case 7a'so !or t(e e'ectricit" retai' %ar/et) crossB-order trade is t(e %ost e!!ecti#e *a" to increase co%petition in t(e %ar/et. I! it is di!!icu't !or aut(orities to cu'ti#ate do%estic co%petition *it(in a %ar/et co%petition %a" -e ac(ie#ed -" increasin) %ar/et?s openness and t(us its contesta-i'it" 7OEC6 2553 p);;). Conse@uent'" t(e !ra)%entation and t(e sun/ costs t(at in#o'#es 'o*er t(e possi-i'it" o! a !orei)n success!u' !ir% to enter t(e %e%-er state?s %ar/et. Fra)%entation as a -arrier to entr" deters t(e contesta-i'it" o! t(e %ar/et and actua' co%petition to e#o'#e. Ba'd*in and Ca#e 71...) su))est an e!!ecti#e so'ution to t(e direction o! re%o#in) t(e re)u'ator" di!!erentiation -arrierF re)u'ator" coordination +. Ba'd*in and M. Ca#e 1... p)1&&). Apparent'" under t(e Second E'ectricit" 6irecti#e and t(e 8n!air Contract Ter%s 6irecti#e t(e (ar%oni9ation o! t(e di!!erent %e%-er states? !ra%e*or/ *as not ade@uate. It re%ains to see *(et(er t(e T(ird Ener)" ,ac/a)e and t(e ne* 6irecti#e !or consu%er ri)(ts 7at 'east in its !or% as a proposa') introduce t(ose e'e%ents needed to !aci'itate re)u'ator" coordination. As seen a-o#e (ar%oni9ation in t(e !ie'd o! un!air ter%s is t(e %ain o-1ecti#e o! t(e ne* 6irecti#e proposa' on Consu%ers? +i)(ts. T(e TE, as seen in section 3 is a -o'd step to*ards re)u'ator" coordination. T(e TE, sets up a European A)enc" responsi-'e !or t(e N+As? coordination and in )enera' ca''s N+As !or %ore s"ste%atic and inBdept( cooperation in t(e re)u'ator" !ie'd. +e)u'ator" coordination and cooperation (as a centra' ro'e in t(e te:t o! t(e T(ird Ener)" ,ac/a)e. T(e TE, not on'" esta-'is(es t(e A)enc" !or cooperation o! ener)" re)u'ators in t(e p'ace o! E+0E0 -ut a'so stresses out se#era' ti%es t(e need !or
    3.

    Entries to !orei)n co%petiti#e %ar/ets are a co%%on e'e%ent o! t(e -i) !ir%s? strate)iesB e.). London E'ectricit" 7Frenc( EdF?s su-sidiar" in 8G) supp'"in) 3.3 %i''ion consu%ers 7EdF 0roup Annua' +eport 255& p)&2). Ita'ian ENEL no* distri-utes and supp'ies e'ectricit" to 2.$ %i''ion consu%ers in +o%ania t(rou)( t(ree su-sidiaries (ttp:44***.ene'.co%4en4ene'SinSt(eS*or'd4ro%ania T(e S*edis( Katten!a'' (as 1.1 %i''ion costu%ers in Fin'and and Nor*a" and 3.& in ,o'and and 0er%an" 7Katten!a''Vs Ge" !acts U !i)ures 255; p)2) ,ri#ate Frenc( Sue9 pro#ides 3.$ %i''ion consu%ers in Be')iu% t(rou)( its su-sidiar" E'ectra-e' 7E'ectra-e' co%pan"?s /e" !i)ures 255& p)2)

    $;

    Ioannis P. Papanastasopoulos (2009)

    coordination o! t(e European re)u'ators 7T(ird Ener)" ,ac/a)e E'ectricit" 6irecti#e +ecita's 72$) 72$a) 723) 72&)). T(e re)u'ator" coordination is #ie*ed as a re@uire%ent !or re)u'ator" (ar%oni9ation o! t(e di!!erent %e%-er states? !ra%e*or/s. It is c'ear t(at t(e 'ac/ o! re)u'ator" coordination and (ar%oni9ation is reco)ni9ed as an e'ectricit" %ar/et?s %ain pro-'e%. T(e ne* E'ectricit" 6irecti#e part o! t(e T(ird Ener)" ,ac/a)e %o#es to*ard (ar%oni9ation and coordination. Moreo#er t(e N+As under t(e TE, are a*arded a %ore e%po*ered ro'e in t(e consu%er protection !ie'd. T(ose t*o a%end%ents co%-ined can potentia''" resu't to a %ore (o%o)eni9ed European re)u'ator" 'andscape in t(e !ie'd o! e'ectricit" contract re)u'ation and consu%er protection. On t(e ot(er (and t(ere are no pro#isions 7e:cept !or recita' 2$a) t(at *ou'd pro%ote %easures !or (o%o)eni9ation o! t(e consu%er protection and e'ectricit" contract re)u'ation speci!ica''". It is not t(us certain t(at suc( a (o%o)eni9ation *i'' -e ac(ie#ed in t(e proceedin) "ears. At 'east a!ter t(e introduction o! t(e ne* 6irecti#e on Consu%er +i)(ts t(e (o%o)eni9ation in t(e !ie'd o! un!air ter%s in e'ectricit" consu%er contracts *i'' -e ac(ie#ed to so%e e:tent.

    Section /: Conc#usions
    T(is researc( pro1ect dea't *it( t(e re)u'ation in t(e e'ectricit" retai' %ar/et and speci!ica''" in re)ard to e'ectricit" consu%er contracts. A test e#a'uatin) t(e e!!ecti#eness and e!!icienc" o! t(e sector re)u'ation and 'e)is'ation (as -een -ui't. T(e criteria used !or t(e e#a'uation o! t(e re)u'ation (a#e -een introduced and 1usti!ied. A!ter t(e -enc(%ar/ test *as -ui't t(e researc( proceeded in a presentation o! t(e re)u'ation under e#a'uation. T(e European 'e#e' 'e)is'ationBre)u'ation and t(e %e%-er state 'e#e' re)u'ator" !ra%e*or/s *ere presented and ana'"sed. T(is ana'"sis %ost'" !ocused on t(e pro#isions and ru'es t(at concern t(e consu%er protection and t(e e'ectricit" consu%er SFCs? re)u'ation speci!ica''". T(e ne*'" introduced TE, 6irecti#es? a%end%ents and t(e ne* 6irecti#e on Consu%er +i)(ts *ere a'so ta/en into consideration and *ere co%%ented a't(ou)( not "et into po*er. Later t(e paper proceeded in t(e ana'"sis o! t(e %ar/et !ai'ures in re'ation to t(e e'ectricit" contracts !ound in t(ree %ar/et structures t(at e:ist in European conte:t. T(e !irst t*o %ar/et structures are %onopo'istic na%e'" t(e price capped pri#ate %onopo'" and t(e state o*ned enterprise. E%p'o"in) econo%ic ana'"sis t(e %ar/et !ai'ures in re'ation to a''ocati#e e!!icienc" and consu%er contract @ua'it" *ere presented. It *as !ound t(at t(e introduced 'e)a' and re)u'ator" !ra%e*or/ is ade@uate to -atter t(e pro-'e%s detected in t(ese %ar/et structures. $.

    Ioannis P. Papanastasopoulos (2009)

    ,articu'ar'" t(e co%petition introduced in t(e %ar/et e#en !ro% !rin)e supp'ier is e:pected to rea'i)n t(e SOE contract dra!tin) decision %a/in) to a c'oser to opti%a' 'e#e'. T(e state o*ned enterprise?s %ana)ers *i'' (a#e to -id in contract c'auses? @ua'it" and dra!t inno#ati#e c'auses in order to co%pete *it( independent !ir%s. In respect to t(e price capped pri#ate !ir% contact @ua'it" is e:pected to i%pro#e. T(e un-und'in) o! t(e co%petiti#e e'e%ents !ro% t(e nonBco%petiti#e e'e%ents o! t(e industr" *i'' deter t(e distortion o! dra!tin) incenti#es o! t(e price capped pri#ate !ir%s. T(e pressure t(at t(e price cap app'ies on t(e nonBco%petiti#e e'e%ents o! t(e industr" 7)rid distri-ution) *i'' not -e an"%ore 'e#era)ed to t(e contract @ua'it". T(e !ir% not -ein) inte)rated *i'' not (a#e incenti#es to deteriorate contract @ua'it" and inno#ation in order to circu%#ent t(e price cap presentin) !a/e e!!icienc" )ains. In t(at sense t(e 'i-era'i9ation atte%pt is e!!ecti#e in correctin) t(e dra!tin) incenti#es? distortion in t(e %onopo'istic re)i%es t(at sti'' e:ist in t(e European %ar/ets and can conse@uent'" i%pro#e contract @ua'it". T(e t(ird structure e:a%ined is t(e co%petiti#e e'ectricit" retai' %ar/et. T(is researc( pro1ect paid specia' attention to t(e ana'"sis o! t(e e'ectricit" co%petiti#e retai' %ar/et. As it *as s(o*n in t(e re'e#ant section co%petition (as its o*n i%p'ications in re'ation to contract @ua'it". Learnin) costs readin) costs co%parin) costs and si)nin) costs t(at e%er)e in t(e co%petiti#e %ar/et do not a''o* consu%ers to de#ote in %onitorin) t(e contract content ade@uate ti%e to c(oose t(e -est !ro% -ot( price and nonBprice perspecti#e contract o!!er. It *as s(o*n t(at a rationa' consu%er *i'' -a'ance t(e costs s(e under)oes and t(e -ene!its s(e e:pects. T(ere!ore s(e *i'' not de#ote %ore t(an !e* (ours per "ear in e#a'uatin) and co%parin) price re'ated ter%s o! t(e contracts and si)nin) t(e -est o! t(e%. T(e nonBprice ter%s are %ore ti%e de%andin) to read and %ore di!!icu't to understand t(an t(e price ter%s -ut 'ess ti%e is e:pected to -e de#oted in t(eir readin). T(e e:pected -ene!its !ro% t(is tas/ are 'ess certain and 'o*er in %a)nitude. As s(o*n consu%er *i'' tend to si)n contracts uti'i9in) ru'es o! t(u%-s and4or routines and an as"%%etric in!or%ation pro-'e% occurs. Consu%ers are in#o'#ed in contracts t(at do not read and4or understand. T(is pro-'e%B %ar/et !ai'ure is /no*n as Si)nin) *it(out +eadin) or contract %ar/et !or 'e%ons. As ana'"sed in section one rationa' dra!ters /no*in) t(at consu%ersBor at 'ist a si)ni!icant !raction o! t(e%Bis not a*are o! t(e contract content t(e" si)n *i'' tend to add ine!!icient un!air c'auses t(at -ene!it t(e% as supp'iers. Consu%ers do not e:pect to si)n )ood @ua'it" contracts. 6e%and !or contract @ua'it" decreases and conse@uent'" a''ocati#e e!!icienc" and contract inno#ation in t(e %ar/et. T(e contract @ua'it" is detected as a pro-'e% in #arious %ar/ets. Se#ere consu%er?s 'ac/ o! trust and con!idence a-out t(e content o! t(e contract &5

    Ioannis P. Papanastasopoulos (2009)

    t(e" si)n is dia)nosed and un!air ter%s are !ound e#en in %e%-er states t(at per!or%ed an ear'" 'i-era'i9ation o! t(e e'ectricit" retai' %ar/et. A't(ou)( t(at t(is !act is surprisin) it is e:p'ained -" t(e Si)nin) *it(out +eadin) ana'"sis. T(us co%petition -" itse'! can not 'ead to a contract @ua'it" e@ui'i-riu% t(at *i'' )uarantee a c'ose to opti%a' 'e#e' a''ocati#e e!!icienc" in t(e retai' %ar/et. T(ere!ore re)u'ation (as to -e e%p'o"ed. T(e sort o! re)u'ation e%p'o"ed is rat(er i%portant. T(e European 'e#e' 'e)is'ationB re)u'ation and t(e %e%-er state 'e#e' re)u'ator" !ra%e*or/s are e#a'uated in re)ard to t(eir e!!ecti#eness to deter t(e Si)nin) *it(out readin) pro-'e% and !aci'itate actua' co%petition 7price and nonBprice) in t(e retai' %ar/et. T(e re)u'ation is a'so e:a%ined in re'ation to t(e ot(er t*o )oa'sBo-1ecti#es t(e 'i-era'i9ation atte%pts sets na%e'" consu%er protection and %ar/et inte)ration. In respect to t(e co%petition o-1ecti#e -ot( t(e European 'e#e' and t(e %e%-er state 'e#e' re)u'ation is e!!ecti#e in deterrin) t(e si)nin) *it(out readin) pro-'e% t(rou)( e:tensi#e in!or%ation disc'osure. T(e European 'e#e' re)u'ation opted !or !aci'itatin) consu%ers in!or%ed c(oice rat(er t(an esta-'is(in) a paterna'istic re)i%e o! protectin) %easures. T(e %easure is proportionate eas" to co%p'" and re'ati#e'" c(eap to en!orce. It %oreo#er 'ea#es to %e%-er states discretion t(e adoption o! consu%er protection and contract re)u'ation %easures t(at are suita-'e to t(eir speci!ic need and to t(eir 'e#e' o! %ar/et and consu%er %aturit". Furt(er%ore in!or%ation disc'osure is not intrusi#e to t(e parties? contractin) !reedo%. Fina''" t(e disc'osure duties are assi)ned e!!icient'" to t(e parties and are consistent *it( t(e econo%ic ana'"sis o! contracts t(eor". In re)ard to consu%er protection t(e Second E'ectricit" 6irecti#e and T(ird ener)" ,ac/a)e are %a/in) a step !or*ard. T(e inc'usion o! s%a'' -usiness consu%ers to t(e scope o! t(e consu%er protection %easures is a positi#e step !ro% an econo%ic perspecti#e. E(en it co%es to e'ectricit" supp'" s%a'' -usiness consu%er are not di!!erent in sop(istication or %ar/et po*er !ro% t(e residentia' consu%ers. T(us di!!erentiation *as not econo%ica''" 1usti!ied. Ne#ert(e'ess s%a'' -usiness protection and contract re)u'ation rests on t(e %e%-er states discretion. Moreo#er t(e o-'i)ation t(at t(e TE, sets !or %e%-er states to esta-'is( dispute sett'e%ents %ec(anis%s !or t(e consu%er co%p'ains is a %easure t(at is !ound e!!ecti#e in re)ards to -ot( consu%er protection and introduction o! co%petition )oa's. It is e!!ecti#e !or consu%er protection -ecause it pro#ides s*i!t so'utions to t(eir pro-'e%s )i#en -" an e:pert -od". It is e!!icient -ecause it deters t(e uncertaint" a-out t(e e:istin) ru'es in re'ation to t(e e'ectricit" consu%er contracts? re)u'ation and t(ere!ore !aci'itates &1

    Ioannis P. Papanastasopoulos (2009)

    co%petition. Fina''" i! appea'ed dispute sett'e%ent decisions can i''u%inate t(e )enera' 1ud)es pro#idin) t(e% *it( an e:pert #ie* t(at raises %ar/et speci!ic econo%ic concerns. A %ain concern is t(e se)%entation o! t(e e'ectricit" consu%er contracts? re)u'ation 7e.). un!air ter%s duration rene*a'). T(e e'ectricit" directi#es and t(e 8n!air Contract Ter%s 6irecti#e pro#ide t(e states *it( si)ni!icant discretion. T(is discretion can -e used -" t(e states to adopt contract re)u'ation t(at %eets t(e %ar/ets speci!ic needs. On t(e ot(er (and t(is se)%entation pro#es to -e a -arrier !or e'ectricit" supp'iers to per!or% an entr" to ot(er European %e%-er states. T(ere!ore re)u'ator" !ra)%entation is an o-stac'e !or %ar/et inte)ration to a sin)'e European %ar/et. Moreo#er as a -arrier to entr" it 'i%its t(e contesta-i'it" o! t(e European %ar/ets and conse@uent'" t(e actua' co%petition. T(e T(ird Ener)" ,ac/a)e reco)ni9es t(e pro-'e% o! !ra)%entation esta-'is(in) t(e A)enc" !or t(e Cooperation o! t(e European +e)u'ators and introducin) re)u'ator" coordination as an i%portant precondition !or %ar/et inte)ration. In addition t(e ne* 6irecti#e on Consu%ers +i)(ts sets re)u'ator" (ar%oni9ation o! un!air ter%s as a %a1or o-1ecti#e. Sti'' t(e e'ectricit" retai' %ar/et contract re)u'ation in Europe can not -e e:pected to reac( a satis!actor" 'e#e' o! (ar%oni9ation in t(e proceedin) "ears. Conc'udin) e'ectricit" contract re)u'ation is rat(er e!!ecti#e and e!!icient in ac(ie#in) introduction o! co%petition in t(e %ar/et and consu%er protection. It is not intrusi#e to t(e contractin) !reedo% it is re'ati#e'" c(eap -ecause it re'ies %ost'" on in!or%ation disc'osure and pro%otes consu%ers in!or%ed c(oice -atterin) t(e in!or%ation as"%%etr" *it(out settin) a (ea#" -urden on t(e %ar/et. T(e in!or%ed c(oice approac( t(rou)( in!or%ation disc'osure is neit(er t(e eas" nor t(e @uic/ *a" to so'#e t(e Si)nin) *it(out +eadin) pro-'e% and i%pro#e contract @ua'it". T(e eas" and con#enient *a" *ou'd (a#e -een an adoption o! (ea#" paterna'istic consu%er protection. 8nder t(e current re)i%e it %a" ta/e a *(i'e -e!ore e'ectricit" consu%ers 'earn (o* to !unction in a 'i-era'i9ed 'andscape and reac( to t(e e:pectation o! t(e European re)u'ator per!or%in) t(eir ne* ro'e. Ne#ert(e'ess it is t(e correct *a" to proceed -ecause it (e'ps t(e consu%ers to de#e'op t(eir s/i''s in a co%petiti#e %ar/et c(oose t(e -est o!!er and app'" co%petiti#e pressure to t(e supp'iers. ,ro-'e%s are encountered t(ou)( %ost'" in t(e 'e#e' o! (ar%oni9ation o! t(e %e%-er states? %ar/ets. Se)%entation !unctions as a -arrier to entr". T(e re)u'ator" coordination t(at is instituted *it( t(e TE, is a positi#e a%end%ent -ut o! uncertain resu'ts.

    &2

    Ioannis P. Papanastasopoulos (2009)

    ANNE0 A
    TABLE OF CONTENTS..........................................................................................................2 Section 1: Introduction..............................................................................................................3 Section 2: Main Concepts E!!icienc" and E!!ecti#eness.........................................................$ 2.1 E!!icienc" and Fairness in Consu%er Contracts.............................................................& 2.1.1 Contractua' C'auses and E!!icienc" ........................................................................& 2.1.2 Fairness E!!icienc" and t(e Si)nin) *it(out +eadin) ,ro-'e% in SFC.................. 2.2 E!!ecti#eness and E!!icienc" o! t(e Le)a' and +e)u'ator" Fra%e*or/........................12 2.2.1 E!!ecti#eness and E!!icienc" as Criteria................................................................12 2.2.2 0oa's and O-1ecti#es as Criteria............................................................................12 Section 3: Le)a' and +e)u'ator" Fra%e*or/..........................................................................13 3.1 Le)is'ation.....................................................................................................................1$ 3.1.1 T(e 32425534EC 6irecti#e 7Second E'ectricit" 6irecti#e)....................................1$ 3.1.2 T(e T(ird Ener)" ,ac/a)e.....................................................................................25 3.1.3 T(e .34134EEC Counci' 6irecti#e on 8n!air Ter%s in Consu%er Contracts........22 3.1.2 A Conc'udin) +e#ie* o! t(e Le)a' Fra%e*or/....................................................23 3.2 Me%-er Sate Le#e' +e)u'ator" Fra%e*or/.................................................................22 3.2.1 Speci!ic +e)u'ator" C(oices..................................................................................23 3.2.2 Conc'udin) +e#ie* o! +e)u'ator" Fra%e*or/ ....................................................2& Section 2: Monopo'istic Mar/et Structures -e!ore Li-era'i9ation t(at sti'' E:ist in European Conte:t ...................................................................................................................................2; 2.1 T(e ,rice Cap +e)u'ated E'ectricit" Co%pan" Case....................................................2. 2.1.1 T(e ,rice Cap Mec(anis%.....................................................................................2. 2.1.2 ,rice Cap and <ua'it"............................................................................................31 &3

    Ioannis P. Papanastasopoulos (2009)

    2.1.3 ,rice Cap and Contract <ua'it"..............................................................................31 2.1.2 T(e cause o! incenti#es distortion under ,rice Cap...............................................33 2.2 T(e State O*ned Enterprise .........................................................................................32 2.2.1 State O*ned Enterprises 7SOE): Brie! =istor" 0oa's and O-1ecti#es................33 2.2.2 A T(eoretica' Fra%e*or/ !or SOE Criticis%........................................................33 2.2.3 Criticis% and Concerns a-out 8ti'it" SOE ...........................................................3$ 2.2.2 SOE and E'ectricit" Contracts...............................................................................3& 2.2.3 T(e Case Stud" o! 0reece......................................................................................3; 2.2.$ State O*ned Enterprise Conc'usions.....................................................................21 2.3 T(e Ne* Le)is'ation and t(e Monopo'istic +e)i%es..................................................21 2.2.1 T(e ,ri#ate Monopo'" ..........................................................................................22 2.2.2 T(e SOE ................................................................................................................22 Section 3: T(e co%petiti#e supp'" %ar/et i%p'ications.........................................................23 3.1 Consu%ers in a Ne* +o'e.............................................................................................22 3.2 Co%petiti#e Supp'" Mar/ets: A Contract ,aradise>....................................................23 3.3 In!or%ation Costs and Si)nin) *it(out +eadin) in t(e Li-era'i9ed E'ectricit" Supp'" Mar/et.................................................................................................................................2$ 3.3.1 Consu%ers? +ationa'it" and S*itc(in) Errors.......................................................2& 3.3.2 Consu%ers? Si)nin) *it(out +eadin) or 8nderstandin) E'ectricit" Non ,rice +e'ated Ter%s: Co%parison *it( ,rice +e'ated Ter%s..................................................2; 3.3.2 An E@uation to Esti%ate t(e Ti%e a +ationa' Consu%er Spends on +eadin) and E#a'uatin) A'ternati#e Contract O!!ers..........................................................................35 3.3.2 T(e A#era)e Austrian Consu%er E:a%p'e............................................................32 Section $: E!!ecti#eness and E!!icienc" E#a'uation o! t(e Le)a' and +e)u'ator" Fra%e*or/ .................................................................................................................................................33 $.1 E!!ecti#eness and e!!icienc" in re)ard to retai' co%petition )oa'.................................3$ $.1.1 ,ro%otin) Co%petition t(rou)( In!or%ation 6isc'osure 6uties ..........................3$ $.1.2 Speci!ic Contract Content +e)u'ation ...................................................................$5 $.2 E!!ecti#eness and E!!icienc" in +e)ard to Consu%er ,rotection 0oa'........................$2 $.3 E!!ecti#eness and E!!icienc" in re)ard to Mar/et Inte)ration 0oa'..............................$$ Section &: Conc'usions............................................................................................................$. ANNEA A...............................................................................................................................&3 List o! Scienti!ic Literature:....................................................................................................;3

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    Ioannis P. Papanastasopoulos (2009)

    Table 1: Specific institutional, legal and regulatory choices ade by e ber states, indicati!e of the seg entation in the sector Sources: "#$s (see in inde% of addresses in the literature list& ' ((#)() #eport on *usto er Protection, 200+, pp21,2+&' "ational reports to the co ission retrie!ed through (#)(): http:''---.energy, regulators.eu'portal'page'portal'((#./01('((#.P234I*$TI0"S'"$TI0"$4.#(P0#TS'"ational 520reporting5202006

    Countr"

    E(o +e)u'atesB sets t(e ru'es

    E:tend o! re)u'ator" po*ers


    #egulated andatory clauses' 1andated infor ation disclosure in the contract' )eneral la- applicable #egulated andatory clauses' 1andated infor ation disclosure in the contract'non, reliance on general consu er la1andated infor ation disclosure in the contract'no e%istence andatory general clauses'non, reliance on general consu er la1andatory general clauses set after 2006, those are essential part of the agree ents under the act all suppliers are re<uired to publish standard supply offers on o-n -ebsite and central electricity -eb,portal

    E(en +e)u'ates

    6ispute Sett'e%ent -od"


    "#$ ((*) und (*7& has the po-er to pro!ide non binding reco endation on consu er co plaints

    Austria

    Be')iu%

    "#$ (*#()& onitoring on unfair trading practices

    (% ante appro!al of the contract8s general clauses

    Bu')aria

    "#$ (S(9#*& e% ante appro!al of general clauses in household consu ers S:* (nergy $ct set the rules, State (nergy Inspectorate o!er!ie-s enforce ent "#$ (;(#$& sets the ini u re<uire ents of in!oicing

    (% ante appro!al of the contract general clauses

    "#$ settles co plains regarding conditions of supply, duration and ter ination of contracts

    C9ec( +epu-'ic25

    "#$ ((#0& settle ent po-ers on disputes bet-een licensed suppliers and their costu ers consu ers "#$ (;(#$& board is also the board of the (nergy Supply *o plain 3oard that sol!es the disputes bet-een suppliers and consu ers

    6en%ar/21

    25 21

    E+0E0 T(e C9ec( +epu-'ic?s Nationa' +eport on t(e E'ectricit" and 0as Industries !or 255& p) 3& E+0E0 6anis( +e)u'ators?255; Nationa' +eport to t(e European Co%%ission p)32

    &3

    Ioannis P. Papanastasopoulos (2009)

    Fin'and

    "#$ ((1=&

    0reece

    "#$ (#$(&

    =un)ar"22

    Ire'and23

    Ita'"

    /ungarian (nergy 0ffice sets(appro!e s& the supply codes *(# responsible for setting and o!er !ie-ing the consu er contract regulation >supplier charter? is applicable "#$ ($(()& sets consu er contract standards

    (infor ation disclosure& #egulated andatory clauses' 1andated infor ation disclosure in the contract' reliance on general consu er la#egulated andatory clauses' 1andated infor ation disclosure in the contract' non, reliance on general consu er la9ide regulation of the electricity consu er contracts

    (% ante appro!al of the contract8s general clauses

    )eneral 3oard #esponsible for dispute resolution (*onsu er *o plaint board&

    (% ante appro!al of the contract8s general clauses

    )eneral board responsible for consu er co plaints against the state o-ned enterprise (*onsu ers8 0 buds an& "#$ (1(/& resol!es disputes concerning consu er co plains

    (% ante appro!al

    Infor ation disclosure

    "#$ (*(#& Settle ent po-ers on consu er co plaints, Sector body (lectricity Supply 3oard *onsu er *o plaints $rbitrator ((4*01& :or consu er co plaints against electricity suppliers "#$ deals -ith indi!idual consu er and consu er association co plaints, "#$ issues guidelines for settle ent procedures out of court e% ante appro!al by the "#$ (% ante appro!al of the contract8s general clauses' 1andated infor ation disclosure in "#$ (SP#7& resol!es disputes bet-een consu ers and suppliers (e%cept for dept disputes& "#$ ("**& recei!es general sector specific co plains

    Lat#ia22

    "#$ (SP#7&

    #egulated andatory clauses' 1andated infor ation disclosure in the contract'reliance on general consu er la1andatory ter s for fairness and transparency #egulated andatory clauses' reliance on general consu er la-

    Lit(uania

    22 22

    E+0E0 =un)arian Ener)" O!!ice 255; Annua' +eport to t(e European Co%%ission p) 3; E+0E0 Lat#ia Annua' +eport o! t(e ,u-'ic 8ti'ities Co%%ission 7255;) pp1$B1& 23 E+0E0 Iris( CE+ 255; +e)u'ators? Annua' +eport to t(e E8 Co%%ission pp2$ &;

    &$

    Ioannis P. Papanastasopoulos (2009)

    the contract

    Net(er'ands23

    #ules set by the section 9+ of the (lectricity $ct

    ,ortu)a'2$

    "#$ is responsible for ini u e% ante infor ation disclosure appro!al

    #egulated andatory clauses: Policy #ule on In!oicing ;eadlines for (nergy, Policy #ule on :air *ancellation :ees for 4icense /olders, the right to cancel the agree ent and the conditions applicable to rene-al or cancellation 0bligation for intelligibility of contractual clauses, Infor ation disclosure #egulated andatory clauses' 1andated infor ation disclosure in the contract' reliance on general consu er la)eneral ter s of agree ent negotiated bet-een consu er body and the local trade association ha!e beco e general practice in the industry, They are published on line Infor ation disclosure duties

    "#$ (;T(& recei!es consu er co plains and is responsible for dispute resolution bet-een consu ers and supplier' In addition (lectricity ;ispute 3oard ((le@tro )echillenco issie& dispute settle ent based on self regulation

    9ide e% ante appro!al replaced by ini u infor ation disclosure e% ante apro!al

    S'o#a/ia

    "#$ ((#S(& *onciliation and ediation echanis s to resolute contractual disputes bet-een consu ers and suppliers "#$ (2#S0& #ecei!es general sector specific co plains

    S*eden2&

    "#$ (S(1I& Publishes the general ter s of agree ent in its -ebsite

    8G2;

    "#$ (0:)(1 participates in establishing supply ar@eting code&

    )eneral body responsible for consu ers8 co plaints "ational 3oard for *onsu er *o plaints ($#"& , (lectricity *onsu er $d!ice beurau (national and unicipalities& ad!ise on consu er co plaints SpecialiAed (sector specific& dispute settle ent body for consu er co plaints ((nergy 0 buds an&

    23 2$

    E+0E0 7255;) JNationa' +eport T(e Net(er'ands? p) 21 E+0E0 7255;) ,ortu)uese E+SE 7N+A) Annua' +eport to t(e co%%ission p)13$ 2& E+0E0 7255;) T(e S*edis( Ener)" Mar/ets Inspectorate?s report as per EC 6irecti#es !or t(e interna' %ar/ets !or e'ectricit" and natura' )as 255; pp&2B&3 2; E+0E0 7255;) O!)e% 255; Nationa' +eport to t(e European Co%%ission pp152B153

    &&

    Ioannis P. Papanastasopoulos (2009)

    Table 2: #egulatory choice in consu er right to ter inate electricity supply contract and rele!ant la-s Sources: (* T # # * (, 200B, pp10C,10D& ' ((#)() #eport on *usto er Protection, 200+, pp+2,+C& ' ((#)() #eport on the *usto er S-itching Process, 200+, pg16&

    Countr" Austria Be')iu% Bu')aria

    +e)u'ator" C(oice Consu%er Ter%ination


    :or indefinite duration contract: T-o onths in ad!ance for the first year Si% onths for the rest years :or indefinite duration contract: T-o onths in ad!ance. :or fi%ed duration contracts in t-o onths after rene-al "o specific re<uire ents. The length of duration andatory included in contracts. *ontracts appro!ed in ad!anced by "#$. "o sector specific re<uire ents 0ne onth in ad!ance notice "o sector specific rules )enerally t-o -ee@ notice in ad!ance for both contracts of definite and indefinite duration' *onsu er can not ter inate if debt unsecured Ter ination of contracts by a ini u three onths in ad!ance notice Si% onths in ad!ance notice for capti!e consu ers one onth in ad!ance for non capti!e (eligible&';ebt unrelated to contract ter ination "o sector specific rules 0ne onth in ad!ance notice ' "e- supplier has the right to refuse contracting -ith consu er still in debt to the old supplier

    Le)is'ation
    *onsu er Protection $ct ()eneral& $gree ent Supported by the go!ern ent #ules for 4icensing $cti!ities in the (nergy Sectors *o ercial *ode applicable ()eneral&

    C9ec( +epu-'ic 6en%ar/ Estonia Fin'and 0reece Ita'"

    (lectricity 1ar@et $ct (lectricity Supply *ode "#$ specific rules on ter ination *i!il *ode also applicable *i!il *ode rules concerning energy purchase au%iliary applicable

    Lat#ia Lit(uania

    Lu:e%-ur) ,ortu)a' S'o#a/ +epu-'ic S'o#enia S*eden

    "o sector specific rules The consu er can freely ter inate and s-itch until four ti e per year' ;ebt is a barrier to ter inating the contract "o specific pro!isions for consu er ter ination of contracts' ;ebts ha!e to be settled before ter ination of the contract 0ne onth in ad!ance notice'*onsu er has to fulfill all contractual obligation before ter inating the contract *onsu er free to ter inate but if the contract is fi%ed ter consu er has to pay a penalty fee' Suppliers can refuse to enter in contract -ith consu er still in debt to the old supplier

    )eneral *onsu er and *ontract 4aapplicable

    &;

    Ioannis P. Papanastasopoulos (2009)

    &.

    Ioannis P. Papanastasopoulos (2009)

    Table C: 1andatory regulated contract content Source: ((#)() #eport on *usto er Protection, 200+, pp+1,+2&

    Countries /ustria Estonia France 6ungary <taly

    !bligation
    #eference to standard ter s of the supply code, reference to general ter s, reference to !arious charges #eference to standard ter s of the supply code, reference to general ter s, reference to !arious charges "o rele!ant obligation The hole content of the contract is standardiAed by the regulator (for residential consu ers& the ser!ice pro!ided, price conditions, guarantees and charges to be paid by custo er, eter reading and billing fre<uency, penalties for delays in pay ent or non pay ent, ser!ice <uality standards, dispute settle ent

    0u;emburg "one rele!ant restricti!e pro!isions 0atvia 0ithuania Romania Slova,ia Slovenia Sweden
    #eference to standard ter s of the supply code, reference to general ter s, reference to !arious charges #eference to standard ter s of the supply code, reference to general ter s, reference to !arious charges #eference to standard ter s of the supply code, reference to general ter s, reference to !arious charges "o rele!ant restricting pro!isions "o rele!ant obligations Infor ation disclosure not only in contracts but also -ith infor ation and 9ebPages aterial

    ;5

    Ioannis P. Papanastasopoulos (2009)

    Table E: 4ist of clauses that -ere handled in differentiated Source: (* T # # * (, 200B, pp12C,12+&

    anner in

    e ber states.

    C'ause 8ni'atera' consu%er?s co%%it%ent unti' t(e contract is si)ned Fu'' reinstitution !or de'a"ed pa"%ent 7interest procedure costs) 6e%and !or additiona' c(ar)es due to *ron) %eterin) or -i''in)

    6ecisions
    Italy t-o contradicting decisions one of -hich found the clause fair Italy found fair $ustria the clause -as found unfair $ustria -as found unfair

    Spain found unfair if it is due to supplier8s ista@e )er any, )reece, $ustria, Portugal, Italy li itation unfair for supplier8s negligence

    Lia-i'it" !or da%a)es due 3elgiu li itation to #o'ta)e #ariation

    !alid for inor faults

    Succession o! supp'iers to Italy found fair t(e contract

    "or-ayE9 the supplier can as@ the difference bet-een actual and charged consu ption e!en three years after :rance, 27 liability "etherlands also for any li itation foreseeable unfair da ages (no loss of profits& "or-ay unfair li itation for negligence , liability for indirect and conse<uential losses $ustria Portugal unfair

    Table +: Incu bents ar@et shares in 200B in B e ber state countries Source: (urostat 2009 (uropean electricity ar@et indicators

    2.

    Nor*a" is not a %e%-er state -ut participates in CEE+ and E+0E0 as a European Econo%ic Area %e%-er and as a %e%-er o! t(e re)iona' Nordic %ar/et.

    ;1

    Ioannis P. Papanastasopoulos (2009)

    Countr" EE EL CO LK MT ,T F+

    Incu%-ent?s %ar/et s(are 155R 155R 155R 155R 155R ;$R .5RW

    Table D: ;istribution "et-or@ 2nbundling in the (2. (2 energy

    ar@et liberaliAation statistics 200+

    8n-und'in) %ode' O*ners(ip Le)a' Accounts Mana)e%ent No un-und'in)

    No o! E8 %e%-er states 1 . . 2 2

    ;2

    Ioannis P. Papanastasopoulos (2009)

    Table B: Public o-ned distributors Fsuppliers in (2

    e ber states

    State 8G Austria

    Supp'ierBretai'er %ar/et status


    Public o-ned until 1969 (liberaliAation (lectricity $ct& Pri!atiAed #egional Suppliers 2001 introduction of co petition. 200E unbundling of distribution and retail. #egional distribution retail utilities are still public o-ned (at least +15& coe%istence -ith pri!ate retailers. Public o-ned !ertically integrated 2000. In 200E partial unbundling 4ocal unicipality o-ned suppliers coe%ist -ith partially or fully pri!atiAed since 1996 Still public o-ned !ertically integrated for al ost 1005 of costu ers Public (lectricity Supplier State o-ned by 9+5. /a!ing 995 share although ar@et opened in 200+. Public o-ned and !ertically integrated ("(4 until 1999 no- C15 public o-ned retail co petition 1unicipality o-ned distributors,suppliers. 2ntil 2001 all consu ers all energy fro public o-ned. 2ntil 200E rene-able also fro pri!ate. $fter 200E full liberaliAation. 4ocal onopoly distributors suppliers all pri!ate but one since 1990 Public local distributors suppliers unbundled in 1992, franchised in 199+,199D In 200D only t-o out of the t-el!e retailers -here pri!ate 2ntil 200B three regional public o-ned distributors suppliers then unbundled and co petition The public o-ned =attenfall is still operating as an integrated underta@ing and has perfor ed ar@et entry in (uropean ar@ets. #etail co petition e%ists

    France 0er%an" 0reece Ire'and Ita'" Net(er'an ds Spain =un)ar" ,o'and S'o#a/ +epu-'ic S*eden

    List of Scientific Literature:


    A/er'o! 0. A. 71.&5) CT(e Mar/ets !or ILe%onsI: <ua'itati#e 8ncertaint" and t(e Mar/et Mec(anis%D ;2 Huarterly Iournal of Economics 2;;. Austrian Federa' Co%petition Aut(orit" 72552) /eneral investigation of the *ustrian Electricity %ndustry Austrian Co%petition Co%%ittee 7255;) *nnual Report on Competition Policy @evelopments in *ustria At(ens Bar 6ata-ase: (ttp:44***.dsanet.)r41522:&$;.(t% -ar %e%-er access 70ree/) Barte' +. and F. Sc(neider 71..5) The JmessJ of the pu#lic industrial production in *ustria: * typical case of pu#lic sector inefficiency4 ,u-'ic C(oice Ko'u%e $;: 1&B2 BE8C 7255;) The E. Energy <ar"ets after the li#eralisation: Consumers still ,aiting to reap the full #enefits +e!.: A4$54255; B 2241545;

    ;3

    Ioannis P. Papanastasopoulos (2009)

    Baars%a B. et a' 7255$) @ivide and rule' The economic and legal implications of the proposed o,nership un#undling of distri#ution and supply companies in the @utch electricity sector Ener)" ,o'ic" 33 7255&) 1&;3N1&.2 Ba'd*in +o-ert and Ca#e Martin 71...) C8nderstandin) +e)u'ation: T(eor" Strate)" and ,racticeD ISBN: .&;B5B1.B;&&23;B. Barton Barr" 71...) App'ied Ener)" CRis" and promise in energy mar"et li#erali2ation: consumer choice in #uying electricityD App'ied Ener)" $2 71...) 2&3X2;; Barte' +. Sc(neider F. 71..5) CT(e Y%essY o! t(e pu-'ic industria' production in Austria: A t"pica' case o! pu-'ic sector ine!!icienc">D Pu#lic Choice $;: 1&B25 1..1. Ca%eron ,. 6. 72553) +egal *spects of the E. Energy Regulation O:!ord 8ni#ersit" ,ress ISBN: 5B1.B.2&.$3B2 C(ristou +. 72553) CBoi'erp'ateD S*eet U Ma:*e'' ISBN: 5221;.;.5. .&;5221;.;.53 Co%%ission proposa' !or a directi#e o! t(e par'ia%ent and o! t(e counci' on consumers rights COM 7255;) $12 !ina' 255;451.$ 7CO6) Counci' 6irecti#e .34134EEC o! 3 Apri' 1..3 on unfair terms in consumer contracts Cooter +o-ert and 8'en T(o%as 7255;) CLa* and Econo%icsD Fi!t( Edition ISBN: .&;B5B 321B322.5B5 Ca%eron ,. 6. 72553) +egal *spects of E. energy regulation: %mplementing the -e, @irectives on Electricity and /as across Europe O:!ord 8ni#ersit" ,ress ISBN: 5B1.B .2&.$3B2 Carro'' G. 71..3) The Effects of <ultiple 0#!ectives in the Theory of Pu#lic &ector &upply Pu#lic C(oice Ko'u%e &3 Issue 1 6irecti#e 25534324EC o! European ,ar'ia%ent and o! t(e Counci' concerning common rules for internal mar"et in electricity 6irecti#e .$4.24EC o! t(e European ,ar'ia%ent and o! t(e Counci' concerning common rules for the internal mar"et for electricity 6a' Bo E. +ossi M. A. 7255$) Corruption and inefficiency: Theory and evidence from electric utilities Hourna' o! ,u-'ic Econo%ics Ko'u%e .1 pp&3.B&$2 6ata-ase o! C'auses A-usi#es A#ai'a-'e !ree o! c(ar)e 7French( at: http:99,,,'clauses3 a#usives'fr9util9indexKrecherche'htm 6en =erto) Ho(an A. 71...) /eneral Theories of Regulation1 in Encyclopedia of +a, and Economics B. Bouc/aert and 0. 6e 0eest 7editors) ;2

    Ioannis P. Papanastasopoulos (2009)

    6e0eest 0errit 72552) LThe &igning3Cithout3Reading Pro#lem: *n *nalysis of the European @irective on .nfair Contract Terms in Sc(Z!er =ansBBernd and L*o*s/i =ansBH[r)en 7eds.) MonseFuen2en ,irstschaftsrechtlicher -ormen 213B233 F'as( Euro-aro%eter 7255.) Consumers vie,s on s,itching service providers &ummary F'as( EB No 223 E'ectra-e' co%pan"?s /e" !i)ures 255& European ,ar'ia%ent co%%on position !or adoptin) a directi#e o! t(e European ,ar'ia%ent and o! t(e Counci' 7255.) concerning common rules for the internal mar"et in electricity and repealing @irective )6689:=9EC 7Third Energy Pac"age( EuroB-aro%eter 21. 7Specia') 72552B2553) CConsumers 0pinions on &ervices of /eneral %nterestsD O!!ice !or O!!icia' ,u-'ications o! t(e European Co%%unities ISBN .2B;.2B .522B1 EdF 0roup Annua' +eport 7255&) E+0E0 7255;) =un)arian Ener)" O!!ice 255; Annua' +eport to t(e European Co%%ission E+0E0 7255;) 6anis( +e)u'ators?255; Nationa' +eport to t(e European Co%%ission E+0E0 7255$) CCusto%er ,rotection: An E+0E0 Best ,ractice ,roposition !or ,u-'ic Consu'tationD +e!: E53BCF0B53B5$ E+0E0 Iris( CE+ 255; +e)u'ators? Annua' +eport to t(e E8 Co%%ission E+0E0 72553) CE+0E0 +eport on Custo%er ,rotectionD +e!: E53BCF0B52B53 E+0E0 72553) CE+0E0 +eport on t(e Custo%er S*itc(in) ,rocessD +e!: E53BCF0B52B5$ E+0E0 C9ec( +epu-'ic?s Nationa' +eport on t(e E'ectricit" and 0as Industries !or 255& E+0E0 7255;) ,ortu)uese E+SE 7N+A) Annua' +eport to t(e co%%ission E+0E0 7255;) T(e S*edis( Ener)" Mar/ets Inspectorate?s report as per EC 6irecti#es !or t(e interna' %ar/ets !or e'ectricit" and natura' )as 255; E+0E0 7255;) O!)e% 255; Nationa' +eport to t(e European Co%%ission Eurostat 7255.) European electricity mar"et indicators )667D 6ata in !ocus 124255. E/ G. Soder(o'% , 7255;) C=ouse(o'ds? s*itc(in) -e(a#iour -et*een e'ectricit" supp'iers in S*edenD 8ti'ities ,o'ic" 1$ 7255;) 232N2$1 European Treat" Nice a%end%ents 2555 European Co%%ission 72552) EC 8d electricity mar"et #enchmar"ing report1 )66=1 price #rea"do,n 0a9a'BA"a' Oren 7255&) CEcono%ic ana'"sis o! standard !or% contracts: t(e %onopo'" caseD European Hourna' o! La* and Econo%ics 22 11.N13$ 0ree/ Consu%er O%-uds%an 7255;) CAnnua' report Hune 255&B Ma" 255;D ;3

    Ioannis P. Papanastasopoulos (2009)

    =at9is A. N. 7255;) *n 0ffer you Can not -egotiate in &tandard Contract Terms in Europe: * Easis and a Challenge to European Contract +a, Edited -" =u)( Co''ins ISBN: .&;B.5B211B2&;2B$ =er%a'in B. E. Gat9 A. E. Cras*e'' +. 7255$) Chapter on the +a, N Economics of Contracts in The Oand#oo" of +a, N Economics Iris( Co%%ission !or Ener)" +e)u'ation: Supp'" Mar/et s(ares (ttp:44***.ener)"custo%ers.ie4e'ectricit"4inde:.asp:\Sup Ha%as- T. ,o''itt M. 7255&) CIncenti#e re)u'ation o! e'ectricit" distri-ution net*or/s: Lessons o! e:perience !ro% BritainD Ener)" ,o'ic" 33 7255&) $1$3N$1;& Gap'o* L. S(a#e'' S. 72553) Fairness versus Celfare: -otes on the Pareto Principle1 Preferences1 and @istri#utive Iustice C(ica)o Sc(oo' Hourna's T(e Hourna' o! Le)a' Studies #o'. 32 7Hanuar" 2553) Gat9 A#er" Eiener 71..;) &tandard Form Contracts in The Palgrave @ictionary of Economics and +a, ,eter Ne*%an Gess'er Friedric( 71.23) Contracts of *dhesion: &ome Thoughts a#out Freedom of Contract Co'u%-ia La* +e#ie* $2. Gunne/e +o'! Fens T(eo 7255&(1 0,nership un#undling in electricity distri#ution: The case of The -etherlands Ener)" ,o'ic" 33 7255&) 1.25N1.35 Lat#ia ,u-'ic 8ti'it" Co%%ission 7255;) Annua' +eport o! t(e ,u-'ic 8ti'ities Co%%ission o! t(e +epu-'ic o! Lat#ia on t(e Nationa' Ener)" Sector ,repared !or t(e European Co%%ission La!!ert" +ona'd 6a#id =un)er Ha%es Ba''ard 0ar" Ma(ren(o'9 6a#id Mead 6ere/ Bandera 72551) C@emand Responsiveness in Electricity <ar"etsD O!!ice o! %ar/ets tari!!s and rates La/atos A. 72552) 0vervie, of the Regulatory Environment for Trade in Electricity in Electricity Trade in Europe: Revie, of the Economic and Regulatory Challenges Bie'ec/i H. 6esta M. 0. 7Eds) 2552 G'u*er La* Internationa' ISBN: .5B211B22&.B$ Nis/anen E. A. 71.&3). CBureaucrats and po'iticiansD Hourna' o! La* and Econo%ics Ko'u%e 1; pp $1&B$23 Or)ani9ation !or econo%ic coBoperation and de#e'op%ent 7OEC6) 72553) +essons from li#erali2ed electricity mar"ets Internationa' Ener)" A)enc" ,!ei!!er T. M. E-ers 7255&) -on -egotiated Terms: Palidity of Terms in A@uis 0roup Contract %: Pre3Contractual 0#ligations1 Conclusion of Contract1 .nfair TermsD ISBN: .&;B3B;$$33B523B2 ;$

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