APPENDIX 8
Supplementary memorandum by the Energy
Retail Association
Following up our oral evidence to the TISC we
would wish to offer supplementary information that we believe
will assist the Committee in preparing its report.
We have actively encouraged comments to our
proposals, which were kept broad and simplistic intentionally
because we always viewed the consultation paper as a straw man
upon which detailed processes would be built. We have had an excellent
response to our consultation and have been able to get input more
quickly from a wide range of interests than if we had arranged
individual meetings. Many of the suggestions will be incorporated
in our final report which will be presented to Ofgem.
The Committee made some specific requests for
information and the relevant information is set out below. I understand
that British Gas as the other witness is also providing information
requested by the Committee.
1. LEVELS OF
DEBT
1.1 According to Ofgem's Social Action Plan
quarterly reporting figures, in gas and electricity 66% and 69%
of customers in debt respectively owe less than £100. 19%
of gas and electricity customers owe between £100 and £300.
Of those owing £300-£600 there are 9% of gas customers
and 6% of electricity customers. There are still 6% of gas and
5% of electricity customers recorded as owing more than £600.
2. COST OF
DISCONNECTION
2.1 The Committee also asked about the cost
of disconnection as opposed to writing off a debt. The cost of
disconnection is not excessive but dependent on the suppliers'
arrangements with their contractor. The greater cost is incurred
in the paper trail that is followed prior to disconnection, including
letters, telephone calls and visits. British Gas quoted a figure
in the region of £80 for disconnection and another £70
for pre-disconnection work. An industry average cost of £150-£200
per disconnection is a fair estimate.
3. NON-OCCUPANCY
3.1 We are unable to provide a complete
industry figure, but are advised that approximately 50-75% of
warrants are for empty properties. A judgment is made about whether
to disconnect or maintain the supply to empty premises. For example
a derelict property may be disconnected to prevent illegal occupancy,
but a social housing residence that has been recently vacated
may be offered to a new occupant. In two thirds of cases properties
are reconnected with a meter.
3.2 A warrant will not normally be issued
unless the magistrate is presented with evidence that the supplier
has spoken to the occupier. In exceptional circumstances a magistrate
may issue a warrant provided strong evidence is provided to demonstrate
that every effort has been made for a dialogue with the customer
and there is good reason to believe the property is empty. In
these circumstances suppliers have a legal obligation to make
good any damage resulting from forceable entry. The engineer is
usually accompanied by a police officer.
4. SAFETY NET
PROCEDURE
4.1 During the evidence session the Committee
questions whether the safety net procedure was robust. It may
not have been made clear that following the publication of the
consultation paper suppliers have not been inactive. In fact they
have all begun to implement improvements to their debt management
processes in anticipation of the Energy Retail Association (ERA)
final report.
4.2 As a result since Christmas no vulnerable
customers have been knowingly disconnected.
4.3 I do not want to pre-empt our final
report to Ofgem on protecting vulnerable customers, but a number
of key points will be included in the report. For example, a number
of energy suppliers have arrangements with local debt advice and
energy efficiency schemes. Vulnerable customers are handled by
dedicated teams within the company who work with local organisations,
including citizens' advice bureaux, local authorities, housing
associations, charities and advice agencies. Disconnection and
warrant officers are trained to recognise and act on signs of
vulnerability based on advice provided by social workers.
4.4 Through our discussions with social
services it is clear that, because it was referred to by the Information
Commissioner in his guidance, the role of social services has
been over-stated. Social services have confirmed that they would
envisage that social workers would be involved where a customer
was judged to be at risk. In this circumstance disconnection procedures
would be halted while social services would decide the course
of action. We have case studies where suppliers and social services
have worked together to identify and help customers who were unable
to help themselves. This is consistent with social services' statutory
duty to give priority to children, the elderly and disabled people.
We are in discussion with the Association of Directors of Social
Services to formalise a procedure that will be used with all social
service offices where a customer at risk is referred. Details
will be set out in our report.
5. DISCONNECTIONS
IN ERROR
5.1 We have now seen the additional research
that energywatch provided to the Committee. We are currently investigating
the concerns that they raised because the complaints figures do
not tally with suppliers' own records. We were particularly interested
in the number of disconnections in error. On further investigation
it appears that the 6% of incidents where households were disconnected
having paid their bills was taken from the total number of complaints
received about disconnections between March 2003-March 2004. This
means that of 239 claiming to have been disconnected in error
14 were from customers who had paid their bills but been cut off.
Therefore 1.6% is a more relevant figure. Of course this does
not lessen the impact on those affected; any such incident is
investigated and processes improved to prevent a recurrence. However,
there are a number of reasons for these occurrences for example,
human error resulting in, transposed meter numbers, which means
the wrong one is disconnected. Whilst suppliers try to minimise
mistakes and rectify them immediately even the most robust procedures
will not be 100% secure. We appreciate it can very distressing
for customers and now that we have been informed by energywatch
we can ensure that the suppliers concerned have tightened their
processes. The ERA will be seeking reassurances from our members
that their processes will eliminate errors as far as possible
and that there are procedures for instant re-connection and remedy.
We would urge energywatch to bring these cases to ERA's attention
because it is important that we all learn from these mistakes
on the rare occasions that they occur.
6. SELF-DISCONNECTION
6.1 energywatch also highlighted incidents
of self-disconnection. There is anecdotal evidence that customers
in hardship may view gas as the lower priority fuel and choose
not to pay this in order to meet other debts. Suppliers can install
a pre-payment meter for gas with a debt loaded on to it, only
to find that a customer then refrains from using gas, in effect,
self disconnecting. Gas does not provide light and is not the
only source of heat, so while it is clearly inconvenient, from
a customer perspective the consequence of losing the gas supply
may not of itself need to be addressed quickly they simply transfer
usage to electricity. Having made this choice the customer invariably
does not then respond to contact initiatives because he/she does
not think it necessary. Where a pre-payment meter is fitted suppliers
have systems in place to check that the meter is being used and
that the customer is not having difficulty. This procedure will
form part of the safety net for vulnerable customers in the ERA's
final report.
7. CAN'T
PAY/WON'T
PAY
7.1 energywatch also made references to
research by Dominy and Kempson, which identifies two factors underlying
whether or not people pay their creditors: (i) ability to pay
and (ii) commitment to pay. The first comprises a spectrum of
circumstances and behaviour, which at one end has those people
who just don't have enough money when they fall into debt or when
their creditors seek to collect the debt. At the other end are
those who do have the money during all stages of the debt recovery
cycle. With commitment to pay, Dominy and Kempson say that this
is composed of people who want to pay but cannot, along with four
distinct groups which energywatch did not refer to: (a) people
withholding money on principle; (b) ex-partners withholding payment;
(c) people working the system; and (d) people ducking responsibility.
energwatch's evidence says that it received 522 complaints regarding
actual or threatened disconnection of which 48% were categorised
as disputed responsibility. We do not know how many of these cases
would fall into category (d) or even (c), but it is probably fair
to say that it is not always the supplier who is at fault and
in some instances the customer must accept responsibility for
their actions. Such observations back up the ERA's call for customers
and their suppliers to improve communications through increased
dialogue.
8. FUEL DIRECT
8.1 As was made clear during the evidence
session, we have concerns about whether Fuel Direct is being used
to best effect. By widening the definition and list of benefits
to allow more vulnerable customers to qualify for Fuel Direct,
the Government could make a significant contribution to reducing
fuel poverty. Many vulnerable customers that fall within the ERA
definition or its revision are currently not eligible for Fuel
Direct benefits. This clearly needs to be harmonised. As Ofgem
indicated when giving its evidence, it proposing to host a seminar
involving interested parties, including the Department for Work
and Pensions, to discuss issues surrounding the ways of improving
the direct payments scheme.
We believe that the debate that has resulted
from our work on preventing vulnerable customer disconnections
has been useful in moving closer to a co-ordinated approach between
energy suppliers, the regulatory authority and government. This
is still an emotive issue with perhaps many misunderstood aspects.
We shall address this and offer clarity on the subject in our
report to Ofgem.
A key point for the Committee to consider and
for our report to raise is the need for strong communication links
between suppliers and customers. The more suppliers know about
their customers the easier it is to resolve their problems. Equally
the more customers interact with their energy company the better
the service they receive. This is a long-term issue but it would
be useful if the Committee to draw attention to this point in
its report.
The ERA hopes that this response is useful to
the Committee and looks forward to its report. In the meantime
if you would like any more information please do not hesitate
to contact me.
Duncan Sedgwick
Chief Executive
July 2004
| 
