8 Banning disconnection
76. Noting that, for health reasons, the water industry
is no longer allowed to disconnect its domestic customers for
debt, we asked whether—also for health reasons—there
should be a similar ban on disconnection for fuel debt. Our witnesses
were sharply polarised. Both National Energy Action and Help the
Aged favoured a complete ban on disconnection (though the latter
limited this to a ban for older people). They suggested that this
was the only way to focus the attention of energy companies on
the problem—if the companies were in danger of losing revenue
because of a ban on disconnection, they would be forced to provide
proper advice and support to those falling into debt.[127]
The supply companies, on the other hand, argued that if they could
no longer threaten people with disconnection for debt, then a
number of customers would be less inclined to regard paying their
fuel bills as a priority; there would be more bad debt for companies
to write off; and the main people to suffer would be the customers—especially
those on low incomes—who did pay as their bills would have
to rise to cover the losses from debt.[128]
In support of their case, the supply companies argued that in
the water industry bad debt had increased significantly since
the ban on disconnecting water supplies. We were told that the
typical gross write-off for bad debt had risen to about 2.5 percent
of the turnover of water companies, while for fuel companies write-off
was currently in the region of one percent of turnover. If bad
debt increased similarly following a ban on fuel disconnection,
British Gas said that the total it would have to write off would
rise from the current £62 million per year to about £150
million. Spread over its customer base, this would equate to an
increase in domestic customer bills of, on average, £7-£8
a year.[129] The ERA
estimate was similar to this.[130]
77. Most of the charities did not accept these arguments.
They argued that, as the water industry did not have the option
of installing PPMs, bad debt there was likely to be higher than
for energy supply companies; and they suggested that there was
no reason to spread the extra cost of bad debt over the whole
customer base—increases could be confined to those customers
paying by direct debit or who otherwise appeared to be "better
able to pay", or customers on the Priority Services Register
could be exempted from the increase.[131]
They also pointed out that the companies already incurred costs
of about £150 per customer in the disconnection process,
and that provision of extra energy saving or financial advice
would probably be cheaper than maintaining a big legal department
to deal with the issue of warrants for disconnection.[132]
The companies responded by saying that a ban on disconnection
would simply mean longer recovery times, so debt would swell,
there would be more use of private debt management agencies, and
a greater likelihood that non-payers would be taken to court,
which might push more people into bankruptcy and would more than
offset any administrative savings to the companies from an end
to disconnection.[133]
78. Ofgem and Energywatch stood to one side of this
dispute. Energywatch suggested that, if its suggestions about
improving protection for vulnerable customers, supplying enough
timely advice to limit debt, and initiatives on debt repayment
methods were implemented throughout the industry, the problem
of fuel debt and disconnection would reduce dramatically.[134]
On the other hand, it felt, that concentrating on banning disconnection
was a distraction: it meant that there would be no alleviation
for those in debt for many months.[135]
Ofgem was concerned that a ban would lead to an increase in fuel
debt, which would be unfair to the customers who paid their bills.
However, Ofgem warned that the industry had to demonstrate that
it had in place good, well-observed procedures for limiting debt
and assisting customers on low incomes in order to justify the
continuance of the sanction.[136]
79. As the debates last year on the Energy Bill
revealed, the Government accepts the supply companies' arguments
that a ban on disconnection would lead to a significant rise in
fuel debt. However, we endorse Ofgem's warning: if these companies
are to be allowed to retain the right to disconnect supplies to
customers on the grounds of debt, then they must clearly demonstrate
that they have taken all practicable measures to resolve the problem
earlier. They must provide more support and advice to customers
in financial difficulties, particularly those in vulnerable groups,
and, for gas companies, they must make much greater effort to
install PPMs to avoid the need for disconnection. Moreover, they
must reduce the number of billing errors, particularly in connection
with the customer transfer process. Unless the industry demonstrates
a serious commitment to and success in addressing these problems,
we would recommend the Government to legislate to ban disconnections
of domestic fuel supply.
127 Qq 113 and 116-117 (NEA), 114, 117 and 119 (Help
the Aged); App 13, para 6.2 (NEA); App 4 (Centre for Utility Consumer
Law); App 6, para 7.1-7.2 (Energy Action Scotland); and App 17
(UNISON) Back
128 Qq
72-78 (ERA and BG), App 2, paras 4.1-4.2 (BG), App 3, paras 3.3.2-3.3.6
(BG), App 7 (ERA) and App 5, para 4 (EdF); September Paper, p
22 Back
129 Q
78 Back
130 Qq
72-73 and 76-77 Back
131 Q
121 (NEA) Back
132 Q
118 (Help the Aged) Back
133 App
3, para 3.3.2 (BG); September paper, p 22 Back
134 Qq
20 and 29 Back
135 Q
29 Back
136 Qq
147, 169 and 171. Age Concern was also concerned about the effect
of a ban on disconnection on older people who paid their bills:
App 1, para 2.3 Back
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