|
The Office of Gas and Electricity Markets (Ofgem) is the regulator of Britain's gas and electricity markets. Its principal objective is to protect the interests of consumers by promoting effective competition wherever possible, and among its secondary duties it should have regard to the interests of vulnerable consumers, including the poor and those in rural areas.
Vulnerable consumers
Around 2.25 million households in the UK are classified as being in fuel poverty, spending more than 10% of their income on energy to heat their homes. Although numbers in fuel poverty halved between 1999 and 2002, recent price rises for gas and electricity will increase the numbers in fuel poverty over the next 12 months.
2 million gas consumers and 3.7 million electricity consumers pay for their energy through a pre-payment meter. Consumers can choose a pre-payment meter because it helps them budget for energy use. But suppliers also require consumers who have fallen into arrears on their energy bills to use a pre-payment meter. These arrears often occur because suppliers have provided inaccurate estimated bills in the past, causing a build-up of debt.
Pre-payment meters are the most expensive way to pay for energy, costing around £60 a year more than payment by direct debit. Ofgem endorses these higher prices because they enable suppliers to recover the higher costs of installing and maintaining pre-payment meters. But suppliers are not permitted to charge higher prices to consumers in rural locations, even though it is more expensive to deliver gas and electricity there.
The energy market therefore works against vulnerable consumers. They can fall into debt because suppliers do not provide accurate bills. The supplier recovers the debt through a pre-payment meter. They then have to pay the extra costs of installing and maintaining the pre-payment meter. And many consumers do not know that pre-payment meters cost more.
Energy efficiency
Increasing the energy efficiency of individual homes can help to reduce fuel poverty and also lower the UK's carbon emissions. To achieve this, the Department for Environment, Food and Rural Affairs (the Department) has designed the Energy Efficiency Commitment, which requires suppliers to meet specific energy savings targets. Its estimated cost over the three years to 2005 is £486 million. Ofgem administers the Energy Efficiency Commitment on behalf of the Department.
Suppliers meet their targets by providing energy efficiency measures, such as cavity wall insulation and low energy lightbulbs, to households. Ofgem's administration of the scheme focuses on the numbers of measures installed by suppliers, such as the number of wall cavities insulated. It does not confirm that these measures actually deliver the intended reductions in energy use.
Ofgem estimate that the Commitment added around £8 to each consumer's bill in 2004-05. The Department intends to double the size of the Commitment from 2005-06 which will increase the cost to consumers to around £18 per year. Other environmental measures, such as the Renewables Obligation, and a new Europe-wide Emissions Trading Scheme, will also add to bills. Overall, Ofgem's estimates show that environmental measures will constitute around £33, about 6%, of the average energy bill in 2005-06.
| 
