APPENDIX 7
Memorandum by the Energy Retail Association
The Energy Retail Association (ERA) welcomes
the opportunity to give evidence to the Committee on the issue
of fuel disconnections. In advance of our appearance on the 22
June, we thought it would be helpful to outline in writing the
main points we wish to raise with the Committee.
The ERA very much hopes that the Committee's
inquiry will encourage as wide a debate as possible on the issue
of disconnections, ensuring that the debate focuses all stakeholders
on a workable solution.
Energy retailers have an ambition to bring an
end to disconnections for customers in debt and in need of help.
Disconnecting a vulnerable customer is neither in their interest,
nor is it in the interest of energy companies. In all cases energy
suppliers make every effort to contact their customers when they
are getting into debt and help them manage their money and their
fuel consumption.
However, energy retailers rigorously wish to
defend their right to disconnect those customers who can afford
to pay their bills, but who simply refuse to.
The challenge for energy retailers is to identify
those customers who are vulnerable, offer a range of solutions
to encourage them to meet their fuel payments and ensure that
they continue to receive their energy supply. Our consultation
exercise, launched in April 2004 in collaboration with OFGEM,
seeks to provide an answer to these crucial questions.
In discussions with social services representatives
it is clear that there are no hard and fast rules in identifying
a vulnerable customer. It may be apparent during a visit that
a customer is not entirely coherent by their manner or speech
or there may be physical signs of neglect, such as personal hygiene
or a neglected domestic environment. The only clear guidance that
social services can offer in identifying vulnerability is to look
for changes in lifestyle that have made it difficult for a customer
to pay the bill.
Good citizenship and common sense is the best
measure, but no system that seeks to identify customers in need
of help is entirely risk free whether it applies to energy representatives,
health visitors or social workers.
Energy retailers can endeavour to tackle the
most problematic cases by following a debt management and support
procedure based on professional advice. This must be backed up
by formal arrangements with local advice agencies and charities.
Having sought responses through our consultation we are currently
reviewing our proposed "safety net" procedure as a model
for good practice.
It is clear that social services can only be
part of the solution with regard to vulnerable cases. The role
of social services would be to undertake an assessment to decide
on the most appropriate action, which might include help in the
management of the customer's financial affairs, for example by
setting up arrangements with a third party such as a relative
or a court.
Below are some useful facts about disconnection:
— All energy suppliers follow a step
by step procedure if a customer does not pay a bill, which includes
multiple written and telephone reminders and a visit to the premises.
The customer will be offered debt advice, advice on how to use
energy more efficiently and offered a repayment plan over a certain
period, on credit terms. If this arrangement is not kept up the
customer will be required to take a prepayment meter.
— Disconnection is the final option
after at least a three month process. Neither the company nor
customer wants to revert to this option, which is why in most
cases agreement is reached earlier.
— Between 0.01% and 0.03% of electricity
customers and 0.1% of gas customers are disconnected each year
and only if a prepayment meter is impractical and the customer
is not on benefits, such as Fuel Direct.
— Overall the numbers of customers
disconnected has fallen as suppliers are becoming more skilled
at identifying those who refuse to pay from those who need help
to pay.
— All energy retailers have a policy
not to disconnect vulnerable customers during the winter months.
In considering the issue of whether there should
be a complete ban on disconnections, the following should be considered:
— A ban on disconnection in the energy
sector would increase supply costs that would be passed onto customers
through higher prices. The impact will be greatest on those who
spend a larger proportion of their income on heating and lighting
their houses.
— A ban on disconnection would mean
some customers would be able to continue to take supply indefinitely
without paying, whilst being subsidised by good payers.
— Following the ban on disconnections
in water in 1999, the number of unpaid bills has risen in that
sector by 17% and debt recovery costs by 28%. Currently more than
four million households (one in six) are in debt to their water
company.
— Debt, and the cost of collecting
revenues for water utilities, now equates to £6.95 per household
(6.3% of an average 2002-03 bill). Aged debt in particular has
increased 71% since 1998-99 to £240 million for debt of 24-48
months overdue. Ofwat has warned customers to expect bills to
go up between 2005 and 2010.
The ERA hopes that this information is useful
for the committee and looks forward to answering the committee's
questions on 22 June.
Duncan Sedgwick
Chief Executive
June 2004
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