Review of Non-Daily Metered Retail Gas Market
DOCUMENT
TYPE:
REFERENCE:
Decision Paper
DATE
PUBLISHED:
QUERIES TO:
05 April 2013
CER/13/096
[email protected]
The Commission for Energy Regulation,
The Exchange,
Belgard Square North,
Tallaght,
Dublin 24.
www.cer.ie
CER Decision Paper – Review of NDM Retail Gas Market – CER/13/096
Executive Summary
In November 2010, the CER published the consultation paper entitled “Proposals
on a Roadmap for Deregulation in the Non-Daily Metered Retail Gas Market”.
The CER published its Decision on the Roadmap on 7th June 2011 which
outlined the characteristics which would define a competitive market in the retail
Non-Daily Metered (NDM) gas sector and which would trigger the removal of ex
ante revenue and price controls from Bord Gáis Energy.
On 4th October 2012, the CER published a consultation paper entitled “Review of
Non-Daily Metered Retail Gas Market” (CER Document CER 12/164). This
document considered whether the methodology and findings as set out in the
Roadmap were still valid. The CER sought the view of the public and CER
stakeholders regarding the development of competition in the domestic retail gas
market, and the impact this has on regulatory options. The CER received seven
responses to this Consultation, and thanks respondents for their comments.
In reviewing the definition of the relevant product and geographic market, the
CER concludes that there is a relevant product market for the supply of retail
NDM gas services. The retail NDM gas market is national in geographic scope.
The CER does not find that there is a distinct dual fuel market, but in recognition
of the potential significance of dual fuel offerings, considers the issue in terms of
competitive constraint.
The CER assessed the level of competition in the NDM gas market. At end Q3
2012, Bord Gáis Energy’s share of customers in the retail NDM gas market was
67.9%. While Bord Gáis Energy’s share has been steadily declining, it remains
at a level which is presumptive of market power. The CER assessed a number
of other factors which could potentially mitigate market power, and considered
particularly whether wholesale market liquidity, economies of scale and scope,
customer switching, dual fuel offers and branding may impact on market power.
The CER concludes that dual fuel supply could potentially constrain Bord Gáis
Energy’s market power to some extent, but that none of the other factors is
sufficiently strong to counter Bord Gáis Energy’s position in the retail NDM gas
market, and so Bord Gáis Energy remains in a position where it has the ability
and incentive to exert that market power to the detriment of consumers and
competition.
The finding of market power justifies the continuation of ex ante controls on the
market. The CER reviewed its proposed criteria which define a competitive
market, and also reviewed its regulatory options. The CER has decided that, for
the retail NDM gas market to be considered competitive, the following conditions
all need to be met:
 At least three suppliers, of which two are non-Bord Gáis Energy suppliers
 Each non-Bord Gáis Energy supplier market share is in excess of 10%
 Customer switching rates in excess of 10% per year.
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In addition, a level should be set for Bord Gáis Energy’s market share. In the
Consultation, the CER noted that, if the Bord Gáis brand is considered to confer
a competitive advantage, and Bord Gáis Energy retains its retail brand, then the
market share threshold for deregulation must be reflective of Bord Gáis Energy’s
position in the gas market. The CER has considered the views of respondents,
and decided that if Bord Gáis Energy chooses to rebrand its retail business prior
to deregulation, the market share threshold for deregulation in the NDM retail gas
sector will be set, as was the case in the retail electricity market, at 60%. If Bord
Gáis Energy decides not to rebrand its retail operation, the market threshold for
deregulation in the NDM retail gas market will be set at 55%.
The CER has decided that, in light of the conclusions it has drawn in the
competition assessment, there is no rationale for revising the current price
control. The CER has taken the view that dual fuel offers do not, of their own, act
to constrain Bord Gáis Energy and so there is no case to be made for any
alteration of the current price control to address the dual fuel issue directly. As a
result, the current price control will remain in place.
As in the case for electricity deregulation, some of the implementation details of
the programme of work for the deregulation of the gas retail market will require
further consideration, and consultation on a number of areas as appropriate,
including:



Changes to legislation/statutory instruments
Commitment from Bord Gáis Energy with regard to the brand (to rebrand or
not)
Any consumer issues resulting from retail gas market deregulation.
The CER, drawing on the process developed for the deregulation of electricity,
the CER will indicate in its next Retail Market Report what mechanism it will use
to review market conditions to determine when the deregulation threshold is
reached.
The Commission will review and consult (as appropriate) on a number of licence
issues including:



Application of the Universal Service Obligation
Application of the Supplier of Last Resort Obligation
Application of the Non-Discrimination Obligation
The process of deregulation will require legislative changes and are ultimately
subject to Ministerial approval. The Commission is working with DCENR in
relation to implementing the required legislative changes. This will be followed by
a consultation on appropriate changes in Bord Gáis Energy and independent
supplier licences (as required).
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CER Decision Paper – Review of NDM Retail Gas Market – CER/13/096
Table of Contents
1. Introduction..................................................................................................... 5
1.1 Legislative Background ................................................................................ 5
1.2 Purpose of this paper................................................................................... 5
1.3 Comments Received .................................................................................. 6
1.4 Structure of this Paper ................................................................................. 6
2. Market Definition ............................................................................................ 7
2.1 Introduction .................................................................................................. 7
2.2 Definition of a relevant product and geographic market............................... 7
3. Competition Assessment ................................................................................ 9
3.1 Introduction .................................................................................................. 9
3.2 Market Shares ............................................................................................. 9
3.3 Barriers to Entry, Expansion and Exit ........................................................ 10
3.3.1 Wholesale Market Liquidity .................................................................. 10
3.3.2 Economies of Scale & Scope .............................................................. 11
3.3.3 Customer Switching............................................................................. 12
3.3.4 Dual Fuel Offers .................................................................................. 14
3.3.5 Branding .............................................................................................. 16
3.4 Preliminary Conclusions on Competition Assessment ............................... 18
4. Regulatory Options ....................................................................................... 20
4.1 Introduction ................................................................................................ 20
4.2 Competition Criteria ................................................................................... 20
4.2.1 Overall criteria ..................................................................................... 20
4.2.2 Bord Gáis Energy Market Share .......................................................... 21
4.2.3 Preliminary Conclusions on Competition Criteria ................................ 23
4.3 Regulatory Options .................................................................................... 25
5. Summary and Next Steps............................................................................. 28
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1. Introduction
1.1 Legislative Background
The Commission for Energy Regulation (the CER) is the independent body
responsible for overseeing the regulation of Ireland’s electricity and natural gas
sectors. The CER was initially established and granted regulatory powers over
the electricity market under the Electricity Regulation Act, 1999. The enactment
of the Gas (Interim) (Regulation) Act, 2002 expanded the CER’s jurisdiction to
include regulation of the natural gas market, while the Energy (Miscellaneous
Provisions) Act of 2006 granted the CER powers to regulate electrical contractors
with respect to safety, to regulate natural gas undertakings involved in
transmission, distribution, storage, supply and shipping of natural gas and to
regulate natural gas installers with respect to safety. LPG installers were
subsequently included under the regulation of gas installers with the enactment
of the Energy (Biofuel Obligation & Miscellaneous Provisions) Act, 2010. The
CER’s safety functions were further expanded to include petroleum exploration
and production with the enactment of the Petroleum (Exploration & Extraction)
Safety Act, 2010. The Electricity Regulations Amendment (SEM) Act, 2007
outlined the CER’s functions in relation to the Single Electricity Market and the
Northern Ireland Authority for Utility Regulation (NIAUR). The CER is working to
ensure that consumers benefit from regulation and the introduction of competition
in the energy sector.
1.2 Purpose of this paper
On 4th October 2012, the Commission for Energy Regulation published a
consultation paper entitled “Review of Non-Daily Metered Retail Gas Market”
(CER Document CER 12/164). This document consulted on the level of
competition in the Non-Daily Metered (NDM) retail gas market and the
circumstances under which the current ex ante revenue and price controls should
be removed from Bord Gáis Energy in this market. The consultation paper raised
a number of questions regarding the level of competition in the retail gas market
and the regulatory options available to the CER. This paper summarises the
responses received to the consultation and outlines the decisions reached by the
Commission.
The purpose of this paper is to outline and describe the CER’s decision with
regard to the development of competition in the domestic retail gas market. The
CER carried out a full public consultation on this topic in 2012 and this paper
addresses the responses received. The CER has considered fully the comments
and submissions received during the consultation process and a decision is
outlined in this report.
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1.3 Comments Received
The CER received seven valid submissions in response to its consultation paper
(CER12/164). Submissions were received from the following:
 Airtricity
 Bord Gáis Energy
 Competition Authority
 Electric Ireland
 Energia1
 ESRI
 Flogas
The CER thanks all respondents for their submissions.
1.4 Structure of this Paper
The structure of this paper follows the structure of the consultation paper.
Respondents’ comments are summarised under each of the questions posed in
the consultation, followed by the CER’s analysis and conclusions.

Section 2.0 addresses the definition of the relevant market

Section 3.0 discusses the competition assessment

Section 4.0 examines and concludes on regulatory options

Section 5.0 provides a summary of the decisions and identifies the next
steps.
1
Energia provided a response to the NDM consultation but also resubmitted a VPE response to the
Roadmap consultation. This decision paper references both responses.
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2. Market Definition
2.1 Introduction
Fundamental to an analysis of competition within a given market is the definition
of the market in question. The CER considered the product market, in particular if
the provision of domestic gas and electricity services could be considered to fall
within the same market and if there is a product market for bundled retail
domestic gas and electricity ‘dual fuel’ services. The analysis also considered the
definition of the geographic market. A geographic market is normally defined as
an area in which the conditions of competition are similar or sufficiently
homogenous, and which can be distinguished from neighbouring areas in which
the prevailing conditions of competition are appreciably different.
2.2 Definition of a relevant product and geographic market
Consultation proposals
The review considered the extent to which the NDM residential gas product
market definition as set out in the Roadmap remains valid. The CER proposed
that as gas and electricity cannot be substituted from either the supply or demand
side they cannot be considered to be within the same product market, and so
there is a separate market for gas supply. The CER then considered whether
there is a retail market for dual fuel services. Even if gas and electricity services
are not considered to be direct substitutes for each other, they may still be
considered to be part of the same retail market if there is significant demand for
the products sold together as a bundle. The CER proposed that, on the demand
side, consumers can, and do, purchase gas and electricity services separately.
On the supply side, a hypothetical monopolist in the dual fuel market could not
maintain the price of the bundle above the competitive level without consumers
being able to ‘unpick’ the bundle by buying each of the component parts of the
bundle on an individual basis. The CER therefore concluded that it was not
appropriate to define a “dual fuel” market, but noted that the importance of dual
fuel purchase and supply should be considered further in the context of the
competition assessment.
In its analysis of the geographic market, the CER proposed that differing
conditions of competition indicated that the geographic market should not be
widened to include Northern Ireland. The CER also considered that there was no
evidence to suggest that sub-national markets should be defined.
In summary, the CER proposed that there is a relevant product market for the
supply of retail NDM gas and that this market is national in geographic scope and
respondents were asked to comment on this proposal.
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Question 1 – Respondents are invited to comment on the CER’s proposal
outlined in this section to define a national market for the retail supply of natural
gas to Non-Daily Metered residential customers. Are you in favour of this
proposal? Outline your reasons for agreement or disagreement.
Summary of Responses
Of the respondents that directly addressed this question, all agreed with and
supported the definition of a national market for retail supply of natural gas to
Non-Daily Metered residential customers as raised by the CER in its consultation
document. VPE proposed that, while a dual fuel market should not be defined as
the relevant market for criteria and thresholds to be set determining deregulation
of the domestic gas market, there should be consideration of a dual fuel market
alongside the gas market, with supplementary thresholds if appropriate.
The Competition Authority, while in favour of the proposed definition, noted that
market conditions change over time (consumer preferences, technological
progress and geographic market) and this may potentially impact on the definition
of the relevant market in the future.
CER Response
The CER notes that all respondents agreed with the proposed definition of the
market, and maintains that there is a national market for the supply of NDM gas
to retail customers. The CER considers that it is appropriate to consider the
supply of dual fuel further in terms of the extent to which it may act as a
competitive constraint.
CER Decision
Decision 1 – There is a relevant product market for the supply of retail NDM gas.
The NDM gas market is national in geographic scope.
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3. Competition Assessment
3.1 Introduction
The competition assessment examined the conditions of competition in the NDM
retail gas market, with a view to determining whether or not any organisation
(either individually or collectively) has a position of market power. An undertaking
is deemed to have market power if it enjoys a position of economic strength
affording it the power to behave to an appreciable extent independently of
competitors, customers and ultimately consumers. In order to examine the
conditions of competition in the market, and to determine if any supplier has
market power, the Consultation assessed the structure of the market, in particular
the evolution of market shares held by suppliers, and then analysed barriers to
entry, expansion and exit.
3.2 Market Shares
Consultation proposals
Market shares are often used as a proxy for market power. The CER found that,
based on current market shares, and despite a steady decline in market share, a
strong presumption may be made that Bord Gáis Energy remains the dominant
supplier of NDM retail residential gas services.
Question 2 – Respondents are invited to comment on the CER’s proposal that
Bord Gáis Energy’s market share is presumptive of dominance, pending the
examination of other economic factors. Outline your reasons for agreement or
disagreement.
Summary of Responses
All respondents except for Bord Gáis Energy agreed that Bord Gáis Energy’s
market share is presumptive of dominance. A number of respondents cited
European case law which finds that market shares above 50% raise a rebuttable
presumption of dominance.
Bord Gáis Energy contested the proposed presumption of dominance, and put
forward a view that the analysis relied too heavily on market share. Bord Gáis
Energy argued that the dynamics of the market ensure that Bord Gáis Energy
cannot act independently of its customers and competitors and could not
maintain prices above competitive levels for a sustainable period. Bord Gáis
Energy claimed that there are no barriers to entry or exit; that customers are
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aware of competition and willing to switch; and that all competitors compete on
an equal basis in terms of access.
CER Response
At the end of Q3 2012, Bord Gáis Energy’s market share was 67.9%. The CER
assessed the evolution and distribution of market shares as a first step in the
assessment of competition in the retail NDM gas market. Under European
competition law, a market share of 50 per cent or above establishes a strong
presumption of dominance, and Bord Gáis Energy’s market share is considerably
higher than 50 per cent. The CER agrees with Bord Gáis Energy that the
existence of a high market share only means that the operator may be in a
dominant position, i.e. a high market share is not sufficient on its own to establish
dominance, and indeed in the Consultation, the CER considered a number of
structural and behavioural conditions in the market in order to either reinforce or
mitigate presumptive dominance. These factors are discussed further below in
terms of barriers to entry, expansion and exit.
Focusing on Bord Gáis Energy’s market share, and the evolution of its market
share, the CER maintains that it remains at a level which is strongly presumptive
of dominance.
CER Decision
Decision 2 – Bord Gáis Energy’s market share is strongly presumptive of
dominance.
3.3 Barriers to Entry, Expansion and Exit
In the Consultation, the CER assessed a number of potential barriers to entry,
expansion and exit, including the following:





Wholesale market liquidity
Economies of scale and scope
Customer switching
Dual fuel offers
Branding
3.3.1 Wholesale Market Liquidity
Consultation proposals
The adequate availability of, and access to, wholesale products is a necessary
condition for facilitating an effectively competitive retail market. The CER
considered that potential retail gas suppliers have access to a large and highly
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liquid National Balancing Point (NBP), which reduces the capital investment
needed to enter the market. Respondents were asked to comment on the CER’s
view that the liquidity of the gas wholesale market means that access to the
wholesale market is not considered as a barrier to entry to the retail market.
Question 3 – Respondents are invited to comment on the CER’s assessment of
wholesale market liquidity. Outline your reasons for agreement or disagreement
Summary of Responses
All respondents generally accepted the CER’s assessment of wholesale market
liquidity and that access to wholesale gas supplies is not a barrier to entry.
Bord Gáis Energy considered that suppliers have access to one of the most
liquid wholesale gas markets in the world. In Bord Gáis Energy’s view, wholesale
market liquidity is pivotal in a competitive market, both for incentivising new entry
and constraining retail market exploitation.
While Energia agreed with the CER’s view that the NBP is a liquid market for
gas, it was not convinced that the IBP or storage markets for gas in Ireland were
sufficiently developed or liquid, and so in its view, the question of barriers to
entry, expansion and exit is more complex.
CER Response
The CER recognises possible complexity in assessment of barriers to entry, but
maintains its view that access to the wholesale market is not a barrier to entry to
the retail market.
CER Decision
Decision 3 – Wholesale market liquidity does not pose a barrier to entry to the
retail market.
3.3.2 Economies of Scale & Scope
Consultation proposals
Economies of scale refer to the cost advantage which a large-scale operator may
have over a smaller operator, specifically where the marginal cost of production
decreases as the quantity of output produced increases. Economies of scope
refer to the cost advantage which an operator may enjoy by using the same
production process to produce more than one final product. The CER assessed
the level of economies of scale and scope and noted that the substantial market
share retained by Bord Gáis Energy could be explained by scale economies but it
could equally be a result of its inherited position as the ex-monopolist incumbent
supplier within the sector. However, the fact that the market for residential gas is
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relatively small and is limited to the gas network footprint could potentially
constitute a barrier to entry and expansion associated with economies of scale.
Question 4 – Respondents are invited to comment on the CER’s assessment of
economies of scale and of scope. Outline your reasons for agreement or
disagreement.
Summary of Responses
Most respondents agreed with the CER’s assessment of economies of scale and
scope. In particular respondents agreed that there are limited economies of scale
in the NDM retail gas market and some expressed a view that there is a minimum
cost involved in being active in the market.
Electric Ireland and Flogas suggested that economies of scope are not limited to
dual fuel, but can exist if a supplier has other business interests. Bord Gáis
Energy considered that while the size of the gas market is relatively small, this
does not infer that competitors cannot attain economies of scale and scope from
other markets/market segments. Bord Gáis Energy further noted that they cannot
affect costs faced by competitors or prevent them from lowering their unit costs.
The ESRI suggested that there is little evidence on whether or not there are scale
economies in the supply of gas to residential customers. The ESRI noted that all
entrants to the residential gas market to date have been already established
firms in an adjacent or related market, for whom the costs of market entry are
likely to be lower than for a de novo entrant.
CER Response
The CER considers that economies of scale and scope are to some extent
relevant in the provision of NDM retail gas supply. Scale and scope economies
could present barriers to market entry but nonetheless they have not prevented
the emergence of a degree of competition within the sector.
CER Decision
Decision 4 – Economies of scale and scope may in some circumstances present
barriers to entry to the retail gas market.
3.3.3 Customer Switching
Consultation proposals
The CER noted that low barriers to switching may indicate that, even when
market share may still be high, market power may be reduced. The significance
of customer switching was recognised in the Roadmap Decision, as annual
switching rates of at least 10% were set as one of the triggers for potential
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deregulation. Over the past two years, switching levels within the sector have
remained above the 10% rate set down in the Roadmap Decision. Responses to
the CER Consumer Survey suggest that it is not difficult for retail gas customers
to switch suppliers between competitors and products, which would indicate that
customer switching does not constitute a barrier to entry, expansion or exit.
Question 5 – Respondents are invited to comment on the CER’s assessment of
the extent to which customer switching constitutes a barrier to entry or
expansion. Outline your reasons for agreement or disagreement
Summary of Responses
Electric Ireland expressed a view that switching rates have been decreasing
since Q3 2010, and considered that amongst the key factors influencing this is
the resilience of the Bord Gáis brand (including its association with the gas
network business, customer loyalty schemes etc.).
The Competition Authority noted that despite the entry of new suppliers, Bord
Gáis Energy’s share of gas has remained high and pointed to a degree of
‘consumer inertia’ indicating that a significant cohort of consumers may be
unaware of rivals’ offers or they may be encountering some other impediments to
switching.
The ESRI suggested that caution is required in interpreting switching rates. The
annual rate of switching soon after liberalisation may be a misleading indicator of
the degree to which switching is a barrier to entry if a significant share of
switching is accounted for by a group of “active” consumers switching repeatedly.
In addition, they suggested that current rates of switching may not be indicative
of future rates. Flogas suggested that regard needs to be given to so-called ‘debt
hopping’ when interpreting switching rates.
CER Response
Data supplied by the CER in the Consultation Paper showed that the level of
customer switching remains well above the 10% threshold set down in the
Roadmap Decision. There is no indication from the data that switching levels are
set to fall below the threshold level at any point in the near future and instead it
appears that the rate has stabilised well above the 10% level. This indicates that
customer switching does not represent a barrier to entry or expansion within the
sector.
Nevertheless, the CER acknowledges the point raised by a number of
respondents that there appears to be a degree of customer inertia in both the gas
and electricity markets due to the fact that the number of customers switching is
decreasing and also because there continues to be a significant proportion of
customers not switching even though there may be better deals available. This is
a source of concern to the CER, and has also been a continuing problem in the
UK where a significant fraction of customers have never switched. When any
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supplier is faced by the knowledge that a large fraction of its customers are
unlikely to switch even if prices rise, then that is likely to result in such customers
facing higher prices. In addition to the continued analysis of switching rates and
the investigation of attitudes to switching through the Annual Consumer Survey,
the CER will conduct a public consultation on switching later in 2013.
CER Decision
Decision 5 – Customer switching does not constitute a barrier to entry or
expansion in the retail gas sector.
3.3.4 Dual Fuel Offers
Consultation proposals
The analysis in the competition assessment considered the extent to which Bord
Gáis Energy may be constrained by the existence of dual fuel gas and electricity
offers in the NDM residential gas market.
The CER’s analysis examined trends in dual fuel supply, which indicated that the
proportion of customers who take their electricity and gas services from the same
supplier has stabilised from late 2011 till the present, and has remained at just
under 50% of all domestic gas customers for the last three quarters. The CER
noted that Bord Gáis Energy’s share of the residential electricity market has been
declining since Q1 2011, in spite of its tariffs being generally competitive.
The CER questioned whether Bord Gáis Energy’s relatively small market share in
electricity would be sufficient to constrain any attempt to increase the price for
gas, given its presumptive dominant position in the gas market.
Question 6 – Respondents are invited to comment on the CER’s assessment of
the impact of dual fuel offerings on competitive conditions in the retail gas market.
Outline your reasons for agreement or disagreement
Summary of Responses
Airtricity expressed a view that, while Bord Gáis Energy’s NDM gas tariffs remain
regulated, in other aspects of its business it appears to Airtricity that Bord Gáis
Energy is allowed to operate as if the market was deregulated, and to offer
discounts which act as a barrier to switching.
Bord Gáis Energy suggested that while it does not believe there is a separate
“dual fuel” market, it does believe that competitive dynamics are much more
established amongst the ‘dual fuel’ segment of the residential gas market, and
links this to its view of competitors’ abilities to exploit economies of scale related
to their electricity customer base.
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Energia proposed that no meaningful robust conclusions could be drawn on the
effect of dual fuel products as a competitive constraint, particularly when the
competitive impact of the products is muted.
VPE proposed that an analysis of the dual fuel market should be carried out
which was equivalent to the analysis of the residential gas market. In particular,
VPE proposed that the CER should examine the cross-price elasticity between
gas and electricity with a view to determining the impact of a price change in one
product on demand for the other, and should investigate the competitive
constraints which the electricity market exercises on the gas market.
The Competition Authority noted that, while there is no presumption under
competition law that discriminatory pricing is abusive, it has ambiguous effects on
competition and consumer welfare. In the Competition Authority’s view, the
persistently high market share of Bord Gáis Energy in gas despite the availability
of cheaper alternatives, and the generally less intense competition for gas-only
customers raises concern for the welfare of consumers if tariff regulation was to
be lifted from Bord Gáis Energy at this time.
The ESRI stated that if a firm is dominant, it can profitably raise prices above the
competitive level, and so the existence of a relatively small market share in an
adjacent market may not be relevant. However, the ESRI noted that if a
dominant firm in one market leverages that dominance into an adjacent market,
the result may be that a potential entrant into one market has to enter both
markets and this raises entry barriers substantially. The ESRI questioned
whether a prohibition on tying would prevent such potential leverage.
CER Response
The CER agrees that while dual fuel offers are a significant factor in the supply of
NDM retail gas services, the CER remains of the view that their impact on market
dynamics is not sufficiently strong to present a competitive constraint on Bord
Gáis Energy at this time.
CER Decision
Decision 6 – The presence of dual fuel offerings does not present a competitive
constraint on Bord Gáis Energy.
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3.3.5 Branding
Consultation proposals
The CER undertook preliminary discussions with stakeholders and also took
account of consumer survey findings in reviewing the extent to which branding
may be considered as a barrier to entry in the residential NDM gas market. While
the Bord Gáis brand is seen as a significant barrier to entry for some
stakeholders, the CER was of the view that this is not strongly supported by
evidence from consumer surveys. Nevertheless, the CER noted that it is
important to consider how much of the legacy advantages experienced by Bord
Gáis Energy in the residential gas market are associated with the brand.
Question 7 – Respondents are invited to comment on the CER’s assessment of
the significance of branding as a barrier to entry and expansion. Outline your
reasons for agreement or disagreement.
Summary of Responses
There were mixed views from respondents regarding the significance of branding
as a barrier to entry and expansion.
Bord Gáis Energy suggests that the Bord Gáis Energy brand should not be a
consideration in the determination of a threshold for the removal of price
regulation in the residential gas market as the brand is not a barrier to switching
or entry. In Bord Gáis Energy’s view, this is a marked difference to the electricity
market, where the incumbent’s brand was seen as both a barrier to entry for
competitors, and a barrier to switching for customers.
The Competition Authority noted that differences in brand recognition between
Bord Gáis Energy and ESB were not surprising, given the much smaller footprint
of the gas market. The Authority also noted that awareness of the different roles
of Bord Gáis Energy and Bord Gáis Networks is higher among those who have
switched from Bord Gáis Energy indicating that some customers who have
stayed with Bord Gáis Energy may be unaware of the separation in functions.
The ESRI noted that while brand is a visible manifestation of differentiation, there
are a number of other relevant characteristics of differentiation: reliability, price,
competence, innovation etc. The ESRI suggested that differentiation may or may
not be a barrier to entry because firms in adjacent markets may have
successfully differentiated their products or services and able to transfer that
reputation/brand image into the gas market, such as Electric Ireland and Airtricity.
The ESRI suggests that one definition of a barrier to entry may be that it costs
more for a de novo entrant to successfully establish a brand as compared to the
incumbent. Overall, the ESRI view was that evidence on branding as a barrier to
entry was inconclusive.
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A number of respondents consider the Bord Gáis brand as being very significant
and a barrier to entry for a new entrant.
Airtricity expressed a view that rebranding of Bord Gáis Energy is essential for
competition to develop regardless of Bord Gáis Energy’s market share. Airtricity
would find it unacceptable if Bord Gáis Energy’s network business rather than
supply business was to be rebranded, even if this met the needs of the EU third
energy package. In Airtricity’s view, customers associate Bord Gáis with safety,
and a change of brand for the network business could cause confusion in an
emergency. In Airtricity’s opinion, Bord Gáis Energy’s brand has conferred
significant competitive advantage both in the legacy gas market and for Bord
Gáis Energy’s entry to the electricity market.
According to Flogas, the Bord Gáis brand is extremely strong and has been built
up over a very long period. In Flogas’s view, it clearly provides major benefits to
the incumbent with many consumers unwilling to switch from a brand/entity with
which they are comfortable.
Energia suggested evidence from consumer surveys was inconclusive on the
issue of branding. However, Energia suggested that the Bord Gáis Energy brand
would confer a competitive advantage on the incumbent particularly compared
with a new entrant. Finally, Energia questioned why, if brand was not important,
Bord Gáis Energy has invested in it so heavily over the last 18 months.
Electric Ireland proposed that there has been insufficient evidence to justify what
it considers to be the CER’s consistent position that branding confers a
competitive advantage. Electric Ireland also noted that rebranding was a
condition for deregulation in the electricity market, and stated that it saw no valid
reason for varying that approach.
VPE expressed a view that Bord Gáis Energy has significant brand value and
association, and that this constitutes a barrier to entry and expansion. In VPE’s
view, Bord Gáis Energy is able to use its strong brand identity in the gas market
to leverage into the dual fuel/electricity market.
CER Response
The CER acknowledges that respondents’ views are mixed on the issue of
whether or not Bord Gáis Energy’s brand represents a barrier to entry or
expansion for other players. The CER has, however, noted carefully the
Competition Authority’s observation that there is higher awareness of the
separate roles of Bord Gáis Energy’s retail and network businesses amongst
customers who have switched suppliers and that, as a consequence, those
customers who have not switched may have a perception that quality of service
could be impaired if they switched from Bord Gáis Energy. The CER notes that
while respondents’ views may be mixed, and while respondents generally
recognise that evidence is inconclusive, market competitors are unanimous in
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perceiving that Bord Gáis Energy’s brand does confer a degree of competitive
advantage. Having considered the matter further, the CER now takes the view
that Bord Gáis Energy’s strong retail branding may constitute a barrier to market
entry and expansion and that, in light of this, it is appropriate to reaffirm the
position it first adopted in the NDM Gas Roadmap that the issue of Bord Gáis
Energy’s branding should be taken into account in setting definitive market share
thresholds for deregulation.
CER Decision
Decision 7 – Bord Gáis Energy’s branding constitutes a barrier to market entry
and expansion and so the market share threshold for tariff deregulation in the
NDM residential sector should be lower if the Bord Gáis Energy brand is to reside
in the company’s Retail rather than Networks business.
3.4 Preliminary Conclusions on Competition Assessment
Consultation proposals
The CER’s preliminary conclusion was that the other structural and behavioural
conditions in the market (wholesale market liquidity, economies of scale and
scope, customer switching, and branding) are not sufficiently strong to counter
Bord Gáis Energy’s position of dominance in the retail NDM gas market.
However, the CER noted that dual fuel supply could potentially mitigate market
power to some extent and left the question open in its discussion of regulatory
options.
Question 8 – The CER is proposing that Bord Gáis Energy remains dominant in
the relevant product market for the retail supply of natural gas to Non-Daily
Metered residential customers, due to its continuing high market share and the
absence of factors which would significantly reduce its market power. The CER
recognises that dual fuel supply may potentially mitigate market power to some
extent. Respondents are invited to comment. Outline your reasons for agreement
or disagreement
Summary of Responses
Flogas considered that all factors assessed indicated that Bord Gáis Energy
remained dominant. In Flogas’s view, dual fuel does not mitigate Bord Gáis
Energy’s dominance.
Bord Gáis Energy contended that with a declining market share, high levels of
customer switching, the entry of large and established competitors (which are
underpinned by a liquid and easily accessible wholesale gas market), it is not in a
position to abuse its position of dominance in the residential gas market. Bord
Gáis Energy took the view that with the large focus of the market analysis
concentrating on issues relating to market share, this could produce an outcome
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whereby Bord Gáis Energy will be precluded from engaging in conduct which is
pro-competitive and pro-customer.
The Competition Authority noted that one key aspect of energy markets is the
role of customers in mitigating market power, through their ability to switch to rival
suppliers. In the Authority’s view, the persistently high market share of Bord Gáis
Energy in retail gas when other lower offers are available strongly suggests that
there may be barriers to switching, whether real or perceived, which inhibit
consumers from getting the best value. The Authority recognised that the
existence of dual fuel offerings may to some degree mitigate the power of Bord
Gáis Energy in retail gas. However, the Authority proposed that it is not clear that
the emergence of dual fuel can sufficiently constrain Bord Gáis Energy with its
large legacy market share from the temptation to raise prices on customers who
are either unwilling or unable to switch to a competitor.
Energia proposed that Bord Gáis Energy remains dominant in the relevant
product market for the retail supply of natural gas to Non-Daily Metered
residential customers, due to its continuing high market share and the absence of
factors which would significantly reduce its market power.
Electric Ireland agreed with the CER proposal regarding continuing Bord Gáis
Energy gas market dominance, and failed to see any basis or material value in
the proposition that dual fuel supply may ‘potentially mitigate market power to
some extent.’ In Electric Ireland’s view, there is no evidence either based on
number of acquisitions or pricing policy that Bord Gáis Energy is at any material
disadvantage in dual fuel supply.
CER Response
While the CER recognises that the provision of dual fuel offers is an important
dynamic in the NDM retail market for gas (not least due to market liberalisation in
the adjacent market for electricity), it is not of sufficient importance to mitigate
Bord Gáis Energy’s market power within the relevant market at this point in time.
The CER takes the view that the on-going offering of and uptake by consumers
of dual fuel offers could in time lead to an outcome whereby Bord Gáis Energy’s
market share is below the level at which it is presumed to be dominant.
Nevertheless, the CER concludes that, at this juncture, Bord Gáis Energy
remains dominant in the relevant product market due to its continuing high
market share and the absence of factors which would significantly reduce its
market power.
CER Decision
Decision 8 – Bord Gáis Energy remains dominant in the relevant product market
for the retail supply of natural gas to Non-Daily Metered residential customers.
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4. Regulatory Options
4.1 Introduction
Ex ante regulatory price controls have been imposed on Bord Gáis Energy to act
as a proxy to competition. In its Roadmap Decision, the CER put forward a set of
criteria which were to be met before regulatory price controls would be removed.
The Consultation considered whether these criteria were still valid. The CER
recognised that the regulatory challenge is to assess the extent to which ex ante
tariff regulation in the residential gas market is still required to address actual and
potential anti-competitive behaviour by a dominant operator, without
unnecessarily prolonging the period of price regulation in a way which would
damage the further development of competition.
4.2 Competition Criteria
4.2.1 Overall criteria
Consultation proposals
The CER suggested that the criteria set out in the Roadmap still constituted a
valid means of measuring the level of competition in the market. The Roadmap
had indicated that:



Three suppliers should be active in the market
There should be at least two non-Bord Gáis Energy suppliers, each with a
market share of at least 10%
There should be an annual customer switching rate of at least 10%.
In addition, the Roadmap had noted that deregulation would not be considered
until Bord Gáis market share fell below a certain level. An indicative level of 60%
was suggested, but no conclusive decision was taken on the level of market
share, as CER’s view was that this was contingent on a decision on branding.
The Consultation proposed that it was not conclusive that branding conferred a
competitive advantage, and that, if respondents agreed with this, it may be
appropriate to separate branding from a consideration of Bord Gáis Energy’s
dominant position. The implication of this would be that the market share level
criterion for the removal of ex ante regulation would be less than the indicative
60% set out in the Roadmap.
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Question 9 – Respondents are invited to comment on the CER’s proposal that the
overall criteria taken to define a competitive market are still valid. Outline your
reasons for agreement or disagreement
Summary of Responses
There was broad agreement on the overall criteria across respondents.
Some respondents considered that amending the criteria at this stage would give
rise to additional uncertainty.
CER Response
The CER notes the broad agreement amongst respondents as to the
appropriateness of the overall criteria, which were originally set out in the NDM
Gas Roadmap, taken to define a competitive market. CER reaffirms its position
that these criteria remain valid in the context of assessing competition in the
NDM retail gas market.
CER Decision
Decision 9 – The criteria taken to define a competitive market that were set out
in the NDM Gas Roadmap remain valid and will be used by the CER as the basis
for deciding when regulatory price controls should be removed within the NDM
retail gas market.
4.2.2 Bord Gáis Energy Market Share
Consultation proposals
The CER’s preliminary conclusion on branding was that the network and retail
operations should be branded differently, to minimise customer confusion. In its
Review the CER noted that there were a number of possible reasons to consider
rebranding in the retail gas market. These related to the removal of confusion
amongst retail customers about the difference between Bord Gáis Energy’s
wholesale and retail operations, the possible need for rebranding where the
existing brand conferred a competitive advantage on Bord Gáis Energy and the
use of rebranding as a mechanism to reduce Bord Gáis Energy’s market share.
The CER noted that, if Bord Gáis Energy’s aim was to secure the removal of
price regulation, the trade-off would have to be a decline in its market share.
Respondents were asked to comment on the extent of the relationship between
market share and branding and the CER’s analysis of this issue.
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Question 10 – Respondents are invited to comment on the CER’s analysis of the
relationship between branding and market share. Outline your reasons for
agreement or disagreement.
Summary of Responses
Bord Gáis Energy proposed that their brand does not offer any competitive
advantage and rebranding would not offer any positive results in terms of
providing value to the gas and electricity markets or in stimulating further
competitive activity.
The ESRI suggested that rebranding could equally be introduced in the upstream
operation, Bord Gáis Networks. The ESRI suggests that it is not clear how
effective rebranding would be and expressed a view that the Bord Gáis brand
does not seem to confer a competitive advantage on Bord Gáis Energy. The
ESRI considered that even if this mechanism were expected to be effective, it
could be tested by requiring rebranding before deregulation, rather than doing it
simultaneously.
Electric Ireland suggested that branding is at the heart of competitive advantage.
They suggest that the Ofgem review (referred to in the consultation document)
was conducted in a mature competitive market with a significant number of large,
strong competitors, which differs to the market in Ireland. Electric Ireland note
that Ofgem further added that ‘brand separation may be more important in other
energy markets, particularly continental Europe, where competition is at a less
developed stage, or is only just being introduced’.
Flogas reemphasised their point that Bord Gáis retail and Bord Gáis network
should be separately branded. Given that the Bord Gáis brand is so strong, they
believe it represents a barrier to new entrants who have to invest in their brand.
Energia suggested that it is important to acknowledge that the experience in
electricity is unlikely to be a good comparator for the likely path of price
deregulation in gas. They suggested that it is also important to consider that in
the absence of an incumbent brand advantage, the structural change in the
market could be accelerated.
The Competition Authority suggested that any actions taken regarding rebranding
should be based on empirical evidence that gauges the strength of the energy
incumbent’s brand and that it is appropriate that the findings of the consumer
surveys should inform the CER’s decision making.
CER Response
The CER notes the varying views put forward by respondents regarding the
relationship between Bord Gáis Energy’s branding and the market share
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threshold for deregulation. The CER remains of the view that Bord Gáis Energy’s
retail and networks operations should be branded differently in order to minimise
customer confusion. The CER also takes the position, as outlined above, that
Bord Gáis Energy’s retail brand constitutes a barrier to expansion for competitors
in the NDM retail gas market.
Given this, and in light of Decision 7 above, the CER has considered carefully
what impact any such rebranding should have on the market share thresholds for
deregulation. It agrees that the evidence on branding is not fully conclusive but
remains of the view that having the brand of “Bord Gáis Energy” is likely to
augment the market power that the incumbent currently has. While this effect
may not be as strong as was the case for the retail electricity market, it is the
CER’s position that it is rebranding of Bord Gáis Energy’s retail operations that
should form the basis for putting in place a higher market share threshold for
deregulation than would otherwise be the case. The CER notes that the issue is
the name of the retail brand, and not the ownership of the brand. The CER does
not propose to oblige Bord Gáis Energy to rebrand but, if Bord Gáis Energy
chooses to do so, the higher market share threshold for deregulation will apply.
Such a retail rebranding by Bord Gáis Energy would be consistent with that which
occurred prior to deregulation in the adjacent retail electricity sector.
CER Decision
Decision 10 – Consistent with Decision 7 above, a lower market share threshold
for deregulation should be put in place in a situation where Bord Gáis Energy has
rebranded its retail gas operations.
4.2.3 Preliminary Conclusions on Competition Criteria
Question 11 – Respondents are invited to comment on the level of Bord Gáis
Energy’s market share which, when combined with the other competition criteria,
could be considered to define a competitive market. Outline your reasons for
agreement or disagreement
Summary of Responses
Bord Gáis Energy suggested that in the removal of price regulation in other retail
markets around the world the relevant authorities have sought to act quickly
during the relative early stages of competition to ensure that regulation does not
impede or dampen the supply side incentives in the market and suggested that a
similar approach be taken in Ireland. Bord Gáis Energy stated that its two largest
competitors have established brands, are recognised by customers and have
large customer bases within the Irish market from which they are leveraging their
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entry from. Bord Gáis Energy argued that its brand does not constitute a
competitive barrier and that it believed there was some justification for the
threshold for the removal of price regulation in the gas market being set at 70%.
However, given the need to give notice, Bord Gáis Energy suggested a threshold
of 65%.
Electric Ireland accepted CER’s definition of a competitive market but put forward
the argument that the key question is what percentage value the brand confers
rather than whether it does or does not confer an advantage.
Airtricity was of the opinion that the threshold for deregulation should be reduced
to 40% market share to ensure full competition has been established. Flogas
suggested that, with rebranding, a deregulation threshold of 60% could apply,
and that if Bord Gáis networks changed their brand the threshold should be
between 50-55%.
In relation to the target threshold for deregulation, Energia suggested that
whether at 50% or 60%, significant competition concerns will remain under a
standard approach to competition assessments and measures may have to be
considered to address these. It was the view of Energia that a threshold in
excess of 50% and retention of the brand would appear to provide for an
unstable market environment and one where anti-competitive concerns would be
heightened.
CER Response
The CER recognises that it is important for regulatory certainty to give market
players and consumers clarity around the issue of the market share threshold for
deregulation. It is also important that the issue of branding in the context of the
market share threshold is dealt with.
While moving towards effective competition is a positive step, the market share
threshold should, in the CER’s view, not permit harmful behaviour by Bord Gáis
Energy after deregulation. As discussed above, the CER is concerned that,
should deregulation occur at a high % level, the deregulated entity may have an
incentive to price above cost, particularly to those customers that are unlikely to
switch supplier. The need to ensure such customers are protected is being taken
into account in setting a threshold, and will also be considered in the context of
continued monitoring and assessment of the electricity retail market.
Having given careful consideration to this issue, it is the CER’s position that, in a
situation where Bord Gáis Energy chooses to rebrand its retail business prior to
deregulation, the market share threshold for deregulation in the NDM retail gas
sector should be set, as was the case in the retail electricity market, at 60%. In a
situation where Bord Gáis Energy decides to retain its existing brand, the CER
takes the view that a lower market share threshold for deregulation should apply.
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This would also be consistent with the position adopted in relation to deregulation
in the electricity market.
Given the weaker association, as demonstrated by consumer research, between
Bord Gáis Energy and “gas” compared with the (then) ESB and “electricity”, the
CER’s position is that this should be reflected in a lower differential than the 10%
used in electricity (i.e. where the market share threshold for deregulation was set
at 50% in the situation where the ESB chose not to rebrand its retail business). In
this regard, the CER is of the opinion that the market share threshold for
deregulation in the NDM retail gas market should be set at 55% in the situation
where Bord Gáis Energy decides not to rebrand its retail operations.2
The CER is of the view that this decision offers a reasonable framework for
competition to continue to develop in the retail gas market. Bord Gáis Energy will
need to reduce its market share to lower levels than currently exist, but it is
important to note that Bord Gáis Energy is entirely unrestricted in its ability to
compete in the electricity market and to offer what it feels are competitive deals in
that area. Thus the decision allows it to compete effectively in electricity while still
being regulated in gas. Both the electricity market and – when deregulated – the
gas market will continue to be monitored by the CER and, should it feel that
customers are being harmed, the CER will use its regulatory powers to intervene
and improve matters.
CER Decision
Decision 11 – The market share threshold for deregulation of the NDM retail gas
market will be set at 60% (where Bord Gáis Energy rebrands its retail operation
prior to deregulation) or 55% (where Bord Gáis Energy decides not to rebrand its
retail operation).
4.3 Regulatory Options
Consultation proposals
The CER’s preliminary conclusion is that, while there is evidence of increasing
competition in the market, the criteria which would trigger the removal of ex ante
regulation are not yet met. The CER concluded in its review that an ex ante price
control is still required and considered three regulatory options:
1. Maintain current approach;
2. Introduce a different form of price control; and,
2
In the electricity deregulation decision paper, the CER noted that, should there be any evidence of
strategic behaviour by any entity to manipulate the timing of reaching of the thresholds, the CER reserved
the right to deregulate as it deemed appropriate. The same will apply to the issue of gas deregulation.
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3. Directly address the issue of dual fuel provision.
The CER proposed that the eventual choice of option depended on the
conclusions of the competition assessment, and particularly on the extent to
which dual fuel offers are seen as constraining Bord Gáis Energy’s market power
in the residential gas market. If dual fuel offers were not seen as mitigating
market power, then there is little rationale for revising the current price control. In
this case, providing Bord Gáis Energy, as the dominant incumbent in gas, with
increased price flexibility in gas could put in jeopardy the long-term goal of a
competitive market in residential gas, in return for, at most, very limited, shortterm gains as well causing considerable disruption to all stakeholders.
However, if dual fuel offers were considered to act as a constraint on Bord Gáis
Energy’s market power, then there may be an argument for either modifying the
current price control, or for directly addressing the provision of dual fuel offers.
Question 12 – Respondents are invited to comment on the CER’s identification
and assessment of three regulatory options. Outline your reasons for agreement
or disagreement
Summary of Responses
Most respondents agreed that the criteria which would trigger the removal of ex
ante regulation have not yet been met.
All respondents, except Bord Gáis Energy, agreed that the current price control
should be maintained.
Flogas proposed that it was important that the Revenue Control Formula (RCF)
be fully reflective of all the costs involved in serving the NDM residential gas
market, as failure to do this could force newer entrants to exit the market. Flogas
strongly opposed the concept of a price cap, and expressed a view that the likely
impact of a price cap would be to delay deregulation, perhaps indefinitely. In
Flogas’s view, below cost selling should be prohibited by Bord Gáis Energy’s
licence, and while the market remains regulated, Bord Gáis Energy should not be
allowed to discount below the regulated rate.
Electric Ireland endorsed maintenance of the current price control, and
expressed a view that alternative options would provide additional competitive
advantage to the incumbent at a time when there is already concern and
uncertainty about progress towards the benchmarks for deregulation.
VPE considered that a move to a price cap should not be sought at this time,
because of Bord Gáis Energy’s dominance in the residential market, as well as
its dominance in the gas capacity market, its strong brand and its ability to
leverage within an opaque organisational structure. In VPE’s view, moving to a
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price cap would raise further concerns on cross-subsidisation and below cost
selling.
Bord Gáis Energy believed that the current price control may be acting to stifle
the development of competition and supply-side innovation in the gas market.
Bord Gáis Energy favoured the introduction of a transitional price control, namely
a price cap, on the basis that it better reflects the dynamics of a competitive
market3.
Energia and Electric Ireland agreed with the current approach to price regulation.
On the final option (relating to dual fuel provision), Energia states that sufficient
detail is not provided in the consultation paper as to what this would involve or
how it would operate in the market.
Electric Ireland suggested the risks inherent with initiatives4 relating to the
relaxing of price controls or to address the issue of dual fuel provision may affect
progress towards a competitive market. According to Electric Ireland, empirical
evidence indicates that a participant in a competitive market will naturally seek to
optimise any advantage it can through innovation and pricing whereas a
dominant market participant conferred with further competitive advantage through
changes to the market rules will naturally seek to maximise the benefit to itself.
CER Response
The CER is of the opinion that, in light of the conclusions it has drawn in the
competition assessment, there is no rationale for revising the current price
control. The CER has taken the view that dual fuel offers do not, of their own, act
to constrain Bord Gáis Energy’s dominance and so there is no case to be made
for any alteration of the current price control to address the dual fuel issue
directly. As the CER noted in the consultation paper, there seems little point in
providing Bord Gáis Energy with limited price flexibility under a price cap in the
short-term given that such a move could put in jeopardy the long-term goal of a
competitive market outcome. As a result, it is the CER’s position that the current
price control should remain in place.
CER Decision
Decision 12 – The current price control will remain in place until such time as
Bord Gáis Energy’s market share falls below the threshold levels for deregulation
set out in Decision 11 above.
3
It incentivises supply side measures; allows customers to benefit fully from more effective competition,
while providing a “backstop” protection were competition to change; can readily and transparently be set
and reset to reflect evolving market conditions; and more accurately mirrors a competitive market and
therefore progresses a market towards a fully liberalised environment
4
Particularly that Bord Gáis Energy will be in a position to exploit either option through, for example,
opportunistic pricing strategies (targeted below cost selling or price spikes) or margin squeezes.
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5. Summary and Next Steps
Summary of decisions
No.
Area
CER Decision
1
Definition of a
relevant product &
geographic market
There is a relevant product market for the supply of retail
NDM gas. The NDM gas market is national in geographic
scope.
2
Market Shares
Bord Gáis Energy’s market share is strongly presumptive of
dominance
3
Wholesale Market
Liquidity
Economies of
Scale & Scope
Wholesale Market Liquidity does not pose a barrier to entry
to the retail market
5
Customer
Switching
Customer switching does not constitute a barrier to entry or
expansion in the retail gas sector
6
Dual Fuel Offers
The presence of dual fuel offerings does not present a
competitive constraint on Bord Gáis Energy
7
Branding
Bord Gáis Energy’s branding constitutes a barrier to market
entry & expansion and so the market share threshold for
tariff deregulation in the NDM residential sector should be
lower if the Bord Gáis Energy brand is to reside in the
company’s Retail rather than Networks business
8
Preliminary
Conclusions on
Competition
Assessment
Bord Gáis Energy remains dominant in the relevant
9
Overall competition
criteria
The criteria taken to define a competitive market that were
set out in the NDM Gas Roadmap remain valid & will be
used by the CER as the basis for deciding when regulatory
price controls should be removed within the NDM retail gas
market
10
Bord Gáis Energy
Market Share
Consistent with Decision 7 above, a lower market share
threshold for deregulation should be put in place in a
situation where Bord Gáis Energy has rebranded its retail
gas operations
11
Preliminary
Conclusions on
Competition
Criteria
The market share threshold for deregulation of the NDM
retail gas market will be set at 60% (where Bord Gáis
Energy rebrands its retail operation prior to deregulation) or
55% (where Bord Gáis Energy decides not to rebrand its
retail operation).
12
Regulatory Options
The current price control will remain in place until such time
as Bord Gáis Energy’s market share falls below the
threshold levels for deregulation set out in Decision 11.
4
Economies of scale and scope may in some circumstances
present barriers to entry to the retail gas market
product market for the retail supply of natural gas to NonDaily Metered residential customers
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Implementation & Next Steps
This paper sets out the decision regarding the threshold at which the NDM retail
gas market will be deregulated. As in the case for electricity deregulation, some
of the implementation details of the programme of work for the deregulation of
the gas retail market will require further consideration and consultation on a
number of areas, as appropriate, including:

The CER will continue to monitor the NDM gas market and to publish
Retail Market Monitoring Reports on a quarterly basis with a particular
focus on market share and switching indicators. In the next Retail Market
Report due at the end of April, the CER will indicate what mechanism it will
use to review market conditions to determine when the threshold is
reached, drawing on the process developed for the deregulation of
electricity.

Work with DCENR to review changes to legislation/statutory instruments
that will be necessary prior to deregulation, in particular in relation to the
regulation of tariffs under the Gas (Interim) Regulation Act 2002.

Commitment will be required from Bord Gáis Energy with regard to their
decision on to whether to rebrand or not.

Working with DCENR the CER will also develop the legal powers to
intervene and improve matters in cases where the CER feels that
customers are being harmed post-deregulation, as necessary.

Review the changes to the Bord Gáis Energy licence and to other supplier
licences that may be required when the market is deregulated. Drawing on
the experiences in the deregulation of the electricity market, the CER will
review and consult (as appropriate) on a number of licence issues
including:
o Application of the Universal Service Obligation
o Application of the Supplier of Last Resort Obligation
o Application of the Non-Discrimination Obligation
29