APPENDIX 3
Supplementary memorandum by British Gas
1. INTRODUCTION
1.1 Following our initial submission dated
18 June 2004 and our oral evidence on 22 June, British Gas would
like to submit supplementary evidence for the Committee's consideration.
1.2 We were invited by the Committee to
provide further information on three areas, namely on:
— the level of bad debt write off,
and
— the cost of processing debt split
by gas and electricity,
— a breakdown of warrant outcomes.
1.3 The supplementary evidence also addresses
a number of other key points that were raised during the hearing
and which we hope will provide further background and clarification.
2. BRITISH GAS'
RESPONSE TO
SPECIFIC QUESTIONS
RAISED DURING
THE HEARING
2.1 The level of gross bad debt write off
for British Gas in 2003 was £62 million, covering both gas
and electricity and representing just over 1% of turnover.
2.2 The cost of processing gas and electricity
debt is estimated at *, of which approx. * relates solely to the
application and execution of warrants of entry.
2.3 The apportionment of processing costs
between gas and electricity equates approximately to * and * respectively.
Charges not directly related to the management of live debt have
not been included, eg bad debt charges, fraud.
2.4 The total number of warrants executed
for gas was 48,115 and for electricity was 12,462 (total 60,577).
Annex A provides a breakdown of warrant outcomes where properties
were occupied, vacant or where disconnection was not undertaken.
* indicates deletions of material that is
commercial in confidence
3. OTHER KEY
POINTS
3.1 During the evidence session, there was
debate on a number of other issues around: the fitting of gas
pre-payment meters, impacts on customers of debt, disconnections
in error, judicial responsibilities, average gas and electricity
debts, support for vulnerable customers and Fuel Direct, where
we thought it might be helpful to provide further data.
3.2 Fitting of gas pre-payment meters
3.2.1 In 2003, British Gas was able to install
a gas prepayment meter on 4.7% of visits where it was necessary
to execute a warrant, and install an electricity prepayment meter
on 93.8% of visits.
3.2.2 As evidenced above in the case of
electricity, British Gas is very willing to install prepayment
meters where it is safe and practical to do so. However, in the
case of gas, there are genuine industry wide issues that hamper
the fitting of gas prepayment meters where the customer is not
present. British Gas is committed to resolving these issues and
is working with Transco and Ofgem to find solutions. These issues
include:
— It is important to carry out a "purge
and relight" throughout the property—this is vital
on the grounds of customer safety—this activity will take
at least 45 minutes to one hour to complete (three times the time
it takes to disconnect). Where a gas supply has been interrupted
or a meter reconnected, it is necessary to ensure that the air
or gas/air mixture is purged out of the pipes and the appliance
relit and is burning correctly, for safety reasons.
— In order to carry out a "purge
and relight" it is critical that the engineer has access
to all rooms within the property to check for all gas appliances
in order that the necessary safety procedures have been completed.
— Where meters are outside of the property,
access will be required, forcibly if necessary, to carry out the
"purge and relight"
— In carrying out the "purge and
relight", an unfortunate, yet necessary consequence may lead
to the condemning of some or all appliances where safety for the
customer is an issue.
— It is regrettable that in some instances,
the engineer may find themselves in a hostile environment where
personal attack is a real risk. Engineer safety remains paramount
at all times. The length of time it takes to install a PPM and
effectively complete a "purge and relight" within a
property increases the opportunity for personal attack.
3.3 Impacts on customers of debt
3.3.1 British Gas gross debt write-off for
2003 was £62 million, representing just over 1% of turnover.
Compared to an average of 2.5% for the water industry.
3.3.2 Whilst removal of disconnection rights
in the case of gas is estimated to reduce costs of the order of
* for British Gas, there will be additional costs due to elongated
debt paths, increased use of the courts and alternative debt recovery
methods, which will largely offset any potential cost reductions.
3.3.3 The threat of disconnection in our
debt correspondence, where all other attempts have failed, is
an important factor in securing payment from those customers that
otherwise might not have paid or agreed to a payment arrangement.
3.3.4 Determining the level of debt "at
risk" in the event of disconnection procedures being removed,
is very difficult to assess; This is due to factors such as the
extent to which gas and electricity bills would receive a lesser
priority by customers. British Gas is firmly of the opinion that
the threat of disconnection encourages many customers to take
paying their gas and electricity bills seriously and is genuinely
concerned that this will lead to an increased bad debt provision.
3.3.5 Relevant data is therefore limited
on which to base an accurate assessment. However, based on that
of our gross bad debt write-off and the experiences of the water
industry, British Gas' bad debt provisioning could be in the order
of £150-160 million per annum. This approximates an increase
on each of our customers bill, of £7-9 per annum.
3.3.6 Disconnection procedures help to minimise
cross subsidisation of costs, which ultimately are borne by all
customers including those vulnerable customers who do pay.
3.4 Disconnections "in error"
3.4.1 British Gas was concerned to hear
that energywatch seemed to be suggesting at the hearing that 6%
of all customers disconnected were in error with the inference
that these customers had already paid their bill. This is not
the case and it is our belief that energywatch should have made
clearer that the 6% figure quoted in fact related to 6% of the
239 "complaint" cases received by energywatch within
the 12 months up to March 2004. In reality, the 6% referred to
by energywatch equates to 14 consumers across the whole industry
and not 6% of the 12,774 disconnections undertaken for debt during
the same period.
3.4.2 Whilst there are instances of genuine
mistakes being made, the majority of disconnections in error tend
to be related where it subsequently transpires that there is a
mix-up with which meters serves which property, for example, where
there is a block of flats with communal meters. This aside, British
Gas has introduced additional procedures which are designed to
ensure that supplies are traced prior to disconnection. Furthermore,
in the unlikely event that a customer is seemingly disconnected
in error, British Gas has emergency procedures in place to effect
an urgent reconnection, thus limiting any further inconvenience
for the customer.
3.5 Judicial Responsibilities
3.5.1 British Gas noted at the hearing,
comments to the effect that the quality of information provided
by suppliers on application to the courts of a warrant of entry
was potentially lacking. British Gas takes its judicial responsibilities
extremely seriously when applying for warrants. In addition to
its legal responsibilities to its customers eg notice of court
application under Human Rights legislation, under oath it is standard
practice to provide the courts with confirmation that:
— a valid statutory notice of our intention
to disconnect has been sent to the customer;
— a valid notification has been sent
to the customer of our intention to apply for a warrant;
— confirmation of the date of the visit
made to the premises and the result of that visit;
— confirmation that a PPM will be offered
if contact is made, subject to being safe and practical; and
— additional information is provided
as requested of the courts from time to time. Never is information
withheld from the courts or a representation made that is untruthful.
3.6 Average gas and electricity debt
3.6.1 As per our quarterly returns submitted
to Ofgem (Social Obligations Reporting) for 2003, for gas, the
average gas debt is £139.19 and for electricity £188.92.
These figures include those customers who have entered into arrangements
to pay, eg to pay by instalments or via a prepayment meter.
3.6.2 The average debt value at disconnection
for a gas and electricity customers is estimated at between £300
to £400. These figures are greater than the figures identified
in 3.6.1 as it includes those customers that have been progressed
though our comprehensive debt management process, including the
offer of a prepayment meter.
3.7 Support for vulnerable customers
3.7.1 British Gas would like to emphasise
that we treat disconnection as a last resort and offer a wide
range of ways for customers to pay off their debt and at least
14 attempts to contact the customer over a 150 day period.
3.7.2 We have carried out a significant
amount of work internally to address issues surrounding the identification
and subsequent treatment of vulnerable customers. Working with
our charity partners, Help the Aged, Scope, RNIB, Save the Children
and others, British Gas has developed a simple definition of vulnerability
which will include pensioners, people who are disabled or who
have a long-term illness and some families with several young
children.
3.8 Fuel Direct
3.8.1 We believe that Fuel Direct could
be better used to help vulnerable customers manage their debt
more effectively. This would include widening the range of benefits
covered by fuel direct (currently only income support and income
based job seekers allowance are covered) to include disability
living allowance, attendance allowance, long term incapacity benefit,
retirement pension and income support with disability premium.
Annex A
| Warrant Outcomes—2003
| |
| Gas | Number |
| Warrants, executed and meter disconnected for occupied premises
| 12,275 |
| Warrants executed and meter disconnected for vacant premises
| 16,151 |
| Warrants executed, but disconnection did not follow eg customer agreed prepayment meter
| 19,689 |
| Total | 48,115 |
| Electricity | Number
|
| Warrants, executed and meter disconnected for occupied premises
| 169 |
| Warrants executed and meter disconnected for vacant premises
| 3,539 |
| Warrants executed, but disconnection did not follow eg prepayment meter fitted
| 8,754 |
| Total | 12,462 |
| |
| 
