DEPARTMENT OF THE ENVIRONMENT, TRANSPORT
AND THE REGIONS: THE HOME ENERGY EFFICIENCY SCHEME
INTRODUCTION
AND
SUMMARY
OF
CONCLUSIONS
AND
RECOMMENDATIONS
1. The Home Energy Efficiency Scheme, which was established
by the Social Security Act 1990, and operates in England, Scotland
and Wales, provides grants towards the cost of energy efficiency
measures in the homes of people on benefits, the disabled and
the over 60s. The Scheme is overseen by the Department of the
Environment, Transport and the Regions, although its administration
is contracted out to Eaga Limited (referred to as Eaga in this
report), a non-profit-distributing private sector company set
up by the national energy efficiency charity NEA (formerly Neighbourhood
Energy Action) specifically to administer the Scheme.[1]
On the basis of a report by the Comptroller and Auditor General
the Committee took evidence from the Department and from Eaga.
2. The Scheme has been successful in some respects:
it has been effective in increasing the take up of energy efficiency
measures amongst households in the qualifying groups, and some
2.34 million people have benefited from it since it began in 1991.
We consider nevertheless that the Department now needs to exercise
more positive oversight of the Scheme in the following respects:
- targeting the Scheme's resources
Take-up of grants has been disproportionately low
among those living in private rented accommodation, where some
of the poorest people live in housing with the worst energy efficiency.
And, although draught-proofing is the least energy efficient of
all the measures available, it has been chosen by over 70 per cent
of the households benefiting from the Scheme. We expect the Department
to take a stronger lead in promoting the measures that are most
energy efficient and in ensuring that resources reach those who
need them most.
- monitoring Eaga's accumulation of reserves
Eaga are generating substantial surpluses from their
administration of the Scheme. By March 1997, they had accumulated
reserves of £3 million, and their reserves are growing at
a rate of £0.5 million a year. Yet despite the fact that
the contract was awarded to Eaga in both 1993 and 1996 on a single
tender basis, the Department included no clawback provision, and
would have no share in the assets of the company should Eaga be
wound up. We are surprised that the Department are not concerned
at the level of Eaga's surpluses, and are not convinced by their
confidence that they will be able to rely on voluntary re-negotiation
of the contract should they ever judge the surpluses unreasonable.
They should let the contract competitively when it comes up for
renewal in 2001; and in view of the risk-free nature of the business
ensure that there is a claw-back provision in any new contract
for the administration of the Scheme.
- ensuring competition among installers
There have been wide variations in the cost of work
done by installers, even for work on similar properties in the
same area, and it is striking that some installers made almost
all their claims exactly at the grant maximum. This may be a consequence
of the way in which Eaga have limited the competition between
installers. We recognise that Eaga have needed to ensure that
their installers provide a reliable and high quality service to
those people, many of them vulnerable and disadvantaged, whose
homes have been treated under the Scheme. We consider that there
is now scope however for the Department and Eaga to promote more
competition between installers, so that more can be achieved from
the funds available to the Scheme.
3. Our more specific conclusions and recommendations
are as follows:
On the achievement of energy savings and improved
comfort
(i) The Scheme has provided energy efficiency
measures in the homes of some 2.34 million households on
benefits, the disabled and the over 60s. However, the Department
should consider whether more could be done to reach those in greatest
need, particularly in the private rented sector and in the poorest
households. It is welcome that the Department will be carrying
out more research and considering the scope to target Scheme resources
at those who may need it most and where it can be most effective
(paragraph 13).
(ii) The Scheme enables installers to promote
the energy efficiency measure most convenient or profitable for
them, rather than guide the householder to choose the most appropriate
measure. The Committee find it surprising that more has not been
done to promote those measures which are most energy efficient,
and that despite changes to the Scheme in July 1997 draught-proofing
still accounts for around 70 per cent of work done under
the Scheme (paragraph 14).
(iii) The Department should do more to measure
the energy efficiency and benefits in terms of warmth and comfort
delivered by the Scheme, and we note the further work the Department
now propose (paragraph 15).
On the Department's agreement with Eaga
(iv) We are concerned at the reserves which
Eaga have already accumulated, which appear well in excess of
those needed for Eaga to meet their contractual liabilities and
to fund their diversification strategy. By March 1997 Eaga had
total reserves of £3 million, including £1.7 million
not allocated to any specific purpose. At current rates of surplus,
these reserves will continue to grow by £0.5 million a year
(paragraph 28).
(v) It is surprising that the Department
do not consider Eaga's surpluses, which could be used to fund
more grants to householders, to be a cause for concern. We are
concerned that, in spite of the single tender arrangements, no
claw-back provisions were made should Eaga's surplus prove excessive.
We are not persuaded that the Department's reliance on voluntary
re-negotiation of fees, should Eaga's profits be judged to be
excessive, is sufficient to safeguard public funds (paragraph 29).
(vi) The Committee note the Department's
justification for their decision to award the administration contract
to Eaga on a single tender basis in 1996, but look to the Department
to take steps which will ensure that there is genuine competition
for Eaga when the contract comes up for renewal in 2001. We believe
that the Department should include a provision for claw-back in
their contract with Eaga and any successor, to be deployed should
their surpluses prove higher than is considered reasonable (paragraph
30).
(vii) Eaga's constitution includes specific
provisions which circumscribe what can be done with their surpluses
or assets on wind up. Nonetheless, we are concerned that the Department
would have no share or influence in the distribution of Eaga's
assets should they be wound up (paragraph 31).
On Eaga's administration of the Scheme
(viii) Both NEA and Eaga are closely connected
with the insulation industry, and all three have a common financial
interest in the Scheme. It is therefore important that the Scheme
should include sufficient safeguards to ensure that the cost of
work done is kept under proper scrutiny and control, and to ensure
that the Scheme does not operate to the undue advantage of installers.
We look to the Department to ensure that such safeguards are in
place (paragraph 43).
(ix) We are surprised at how little attention
was paid to the cost of claims up to July 1997. The Committee
note the Department's emphasis on quality rather than the cost
of work done, and the consequent improvements in quality that
have been secured. Nonetheless we are surprised at the degree
of variation between different installers in average costs claimed,
sometimes for similar work in the same area. We are also concerned
that the Scheme may encourage installers to claim the grant maximum,
regardless of the extent of work done (paragraph 44).
(x) The Department and Eaga should, under
the new Scheme operating since July 1997, introduce more
competition between installers when area vacancies arise, give
price greater prominence in the appointment of installers, and
allow price to be a key factor in allocating funds and work to
installers once appointed, so that the most benefit can be achieved
for a fixed amount of expenditure (paragraph 45).
(xi) The Department should also investigate
claims by local authorities that they can get work done more cheaply
than under the Scheme, by use of local competitive tendering,
and if these claims are borne out consider whether the Scheme
could be modified to secure similar benefits (paragraph 46).
(xii) The Department are now taking action
to clarify Eaga's legal powers to challenge or amend unreasonable
claims. If uncertainty still remains once the Department have
taken appropriate legal advice, the Department should seek to
clarify such powers and responsibilities by means of revisions
to the governing Statutory Instrument and Eaga's contract (paragraph 47).
1 C&AG's Report (HC of Session 1997-98), paras
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