Ofgem Response
Three recommendations were addressed specifically
to other Government Departments; this response includes the views
of the Department for Work and Pensions (DWP) on the recommendation
about Fuel Direct, and the views of the Department of Trade and
Industry (DTI) on the recommendations about the Priority Service
Register and a ban on disconnections. The DWP has also provided
further information on Fuel Direct in an annex.
Introduction
Ofgem welcomes the Committee's report and supports
the findings. We do not consider that an outright ban on disconnection
would be in the interests of customers. We are pleased that the
Committee has concluded that the priority is for the companies
to demonstrate clearly that they have taken all practical measures
to resolve debt problems, and note that this is in companies'
own commercial interests. Ofgem is committed to ensuring that
the prevention of debt and disconnection remains high on the agenda
of energy suppliers.
In 2001, disconnections for debt peaked at 26,463.
They fell significantly from 17,334 in 2003 to a total of 3,280
in 2004, largely due to British Gas Trading temporarily stopping
disconnections. Of the 3,280 disconnections in 2004, there were
2,553 disconnections in gas (down from 15,973 in 2003) and 727
disconnections in electricity (down from 1,361 in 2003). Ofgem
will monitor the situation closely going forward to see how companies
translate what they have learnt over the last year into better
measures to prevent consumer debt, and effective implementation
of the 'safety net' procedure developed by the Energy Retail Association
(ERA) to protect vulnerable customers from disconnection.
Identity of those disconnected
We do not believe that the statistical information
is as yet either comprehensive or detailed enough to state that
a specific percentage of those disconnected fall into fuel debt
for this or that reason. However, clearly there are various reasons
why customers incur debt and, although some may be unwilling to
pay, others cannot afford to do so, or (for whatever reason) find
it difficult to budget for bills, or have been presented with
inaccurate bills by their suppliers. More could be done by suppliers
to prevent and to limit the build up of debt. (Paragraph 14)[2]
It is difficult for suppliers to know the circumstances
surrounding disconnection of each customer, even in those cases
where reconnection occurs quickly afterwards. Nevertheless, if
companies are to resolve payment problems effectively, it is important
that they improve communication with their customers. This was
one of the key findings of a review that Ofgem recently commissioned,
jointly with energywatch, into the progress made by the six main
energy suppliers with implementing good practice guidelines on
debt prevention and management. The review showed that for some
customers the message that help was at hand did not appear to
be getting through. The review identified a number of examples
of good practice on which the industry can build. Ofgem and DTI
have welcomed the companies' intention, through the ERA, to establish
a national fuel poverty helpline. This is potentially a very
positive step forward in improving communication with vulnerable
customers and their representatives, and with other agencies involved
in working with the disadvantaged.
Disconnections in error
1. No hard information about the true scale of
the problem is available, still less can we draw any statistical
conclusions about the types of error that lead to disconnection.
Although energywatch's analysis (which was based on 239 customers
who complained that they had been disconnected in error) cannot
reliably be used to extrapolate statistics, it is useful in indicating
the types of problem that arise. (Paragraph 23)
2. Companies still make too many errors such as
wrongly recorded names or addresses of customers or—most
frequently—inaccurate meter readings. Even if, as the ERA
suggests, such mistakes affect a small proportion of the millions
of bills that are sent out each year by energy suppliers, this
would still mean a significant number of customers. Errors cannot
be eliminated completely from any system, but the supply companies
should make greater efforts to minimise their number, and should
put in place robust arrangements for correcting mistakes quickly
once they have been detected. (Paragraph 24)
Ofgem fully supports the Committee's conclusions.
Even though there is no reliable evidence that disconnections
in error are a widespread problem, it is vital that energy suppliers
make every effort to avoid them. Ofgem has discussed with suppliers
the areas where problems might arise. It is clear that the main
energy suppliers are mindful of the need to avoid instances where
customers are disconnected in error and have incorporated checks
into their procedures to counter this possibility. Ofgem has
asked energywatch to report any instances where disconnections
in error have occurred.
Debt advice
3. The debt counselling and trust fund schemes
put in place by a number of energy companies are useful and welcome.
However, not all companies are doing enough. We do not wish to
be prescriptive about exactly how companies achieve this, but
we believe that all should give advice on managing debt, and that
Ofgem should report on their compliance with best practice in
this regard. (Paragraph 28)
4. We consider that all supply companies should
be required to provide a benefits health check as a standard part
of their fuel poverty programmes. (Paragraph 30)
As already noted in this response, joint research
by Ofgem and energywatch has identified a number of examples of
good practice by energy companies, including the provision of
debt counselling and trust fund schemes. While all companies
provide access to a benefits health check, often associated with
the provision of energy efficiency programs, more could be done
by the companies to build this into their work on debt prevention.
In a letter highlighting the importance of helping vulnerable
customers at a time of rising energy prices, Ofgem's Chairman
has brought the potential of benefits entitlement checks to the
attention of the Chief Executives of the suppliers.
Use of prepayment meters (PPMs)
5. We recognise that it is more difficult and
time-consuming to fit a PPM for gas supply than for electricity
supply, but we are not convinced that gas supply companies are
making enough efforts to fit such meters. This may be in part
because of the widely-acknowledged shortage of qualified gas engineers,
who have to carry out the process. Whatever the reason for the
present situation, it leaves gas supply companies vulnerable to
the accusation that they prefer disconnection as a cheap and easy
alternative to fitting PPMs. To rebut this argument, they need
to prove that they are making more efforts to fit a PPM wherever
such a payment method is appropriate for the customer. (Paragraph
36)
6. Energy supply companies have suggested in the
past that they are not permitted to cross-subsidise the administrative
costs associated with PPMs from other customers. We are therefore
pleased to note that Ofgem has recently published a paper not
only suggesting that it sees no competition problem in such cross-subsidy
but also encouraging it. (Paragraph 39)
As the Committee notes, while the fitting of a PPM
as an alternative to disconnection is common practice in electricity,
there have been difficulties in doing this in gas because of safety
concerns. Engineers working on meters have to be satisfied that
appliances are operating properly when meters are exchanged, which
has proved difficult when the customer is not present. Ofgem
is aware that, working in conjunction with a meter operator, a
major gas supplier is currently conducting a trial to test a new
procedure to see how this problem can be overcome. It is hoped
that the trial will demonstrate that, provided appropriate procedures
are followed, a gas PPM can be fitted safely in many cases as
an alternative to disconnection even when the customer is not
present.
The Committee states that Ofgem has recently published
a paper which encourages companies to cross-subsidise the administrative
costs associated with PPMs, from other customers. This needs
to be clarified. The paper states there is scope for developing
innovative proposals, in relation to low income and vulnerable
customer groups, which do not cause any regulatory or competition
concerns. As the paper makes clear, among other relevant considerations,
this is on the basis that groups of low income and vulnerable
customers are in themselves unlikely to form a separate market
for the purposes of competition law. Ofgem cannot give 'clearance'
to a particular kind of offer or set of tariffs.
Contacting customers in debt
7. It is not clear to us how many of the supply
companies at present have implemented procedures for attempting
to contact customers and sort out their non-payment problems,
nor can we be sure of the extent to which best practice has been
adopted in the industry. We therefore ask Ofgem to assure us that
all supply companies have committed themselves to such a process.
(Paragraph 46)
8. On the question of actual implementation of
proper procedures, we are pleased to record Ofgem's statement
that it could and would impose financial penalties on companies
that were not implementing debt-handling procedures properly.
(Paragraph 47)
9. Ofgem's quarterly reports on progress in its
Social Action Plan provide a useful mechanism for keeping up the
pressure on companies to follow their procedures. We urge any
advisory bodies and charities involved in supporting customers
in fuel debt—including Members of Parliament—to report
to energywatch any clear examples of failure by companies to follow
adequate debt-repayment procedures; and energywatch must notify
Ofgem of any companies with poor records. (Paragraph 47)
The report commissioned jointly by Ofgem and energywatch
into the progress made by the six main energy suppliers on improving
debt prevention and management concludes that a large number of
initiatives are being tested and implemented by suppliers. However,
more remains to be done on improving communication with customers.
The report highlights a range of best practice initiatives which
Ofgem will be encouraging suppliers to adopt.
Applications for warrant to disconnect supplies
10. Some of our witnesses expressed doubts about
whether the energy companies had exhausted all other procedures
before applying to magistrates for a warrant to disconnect. If
the companies' processes are as thorough and robust as they claim,
then there should be little difficulty in relatively senior company
officials' satisfying themselves that proper procedures have been
followed in full, and signing a document to confirm this. The
document would then be presented to the magistrates when the company
applies for a warrant to disconnect. We ask Ofgem to inform us
what progress has been made in pursuing this proposal. (Paragraph
54)
Under the Rights of Entry (Gas and Electricity Boards)
Act 1954 (as amended), energy companies have to show to the satisfaction
of a magistrate on sworn information in writing, that access to
the premises is reasonably required. These procedures are under
the jurisdiction of the Courts. While Ofgem supports the need
for robust company procedures, it does not consider it appropriate
to attempt to influence magistrates on how they exercise their
discretion in these matters. However, Ofgem understands that
energywatch has sought discussions on this matter with the Magistrates'
Association. Ofgem will liaise with energywatch on its progress.
Protecting vulnerable customers
11. The rewording of the definition of vulnerability
to make it clear that it extends to members of a customer's household
meets the most frequently-voiced concern of our witnesses and
of the respondents to the Energy Retail Association's consultation
paper. However, it is not clear that even this definition would
apply to many of those whose energy supplies are disconnected
for debt at present. (Paragraph 61)
12. It is impossible to judge whether the staff
of energy supply companies will be able to identify most vulnerable
customers and subsequently prevent the disconnection of their
fuel supplies. The proof will lie in the disconnection figures.
Because of the length of the disconnection process, Ofgem's quarterly
reports do not yet show the effects, if any, of these initiatives.
We expect Ofgem to keep the situation under close review, and
we recommend our successors to return to this issue. (Paragraph
64)
13. It is absurd that companies should spend time
and effort in identifying vulnerable customers in order to safeguard
them only for this protection to be lost if the customers change
supplier. We believe that the companies should, as a matter of
urgency, seek clarification from the Information Commissioner
about whether the Data Protection Act prevents the transfer of
this information. We hope that the Information Commissioner will
be able to permit it, with safeguards against use of the data
for other purposes. The comfort of customer confidentiality is
of little consolation if the members of the household are freezing
to death. (Paragraph 66)
14. We were told that a further problem with transferring
such information was incompatibility between the supply companies'
electronic data management systems. However, difficulties with
transferring data on switching of supplier do not end with the
flagging up of vulnerable customers: many of the problems with
billing errors that lead to the threatened or actual disconnection
of supply occur when customers switch suppliers. Sorting out incompatibilities
between electronic systems must form a major part of the effort
to tackle the failures in the customer transfer process. Despite
the expense, we believe that Ofgem should press the companies
to deal with these problems expeditiously. (Paragraph 67)
15. While the ERA's latest proposals have reduced
the burden which the earlier ones appeared to place on local social
services offices, this has merely confirmed that the onus is on
the companies themselves to identify, advise and support vulnerable
customers. We are not convinced that they will be able to provide
a complete safety net. However, they must try. (Paragraph 75)
All the major companies have committed to implementation
of the ERA 'safety net' procedures. The companies' objectives
are to contact and support vulnerable customers, and take action
to avoid them being disconnected. Ofgem will be monitoring companies'
progress, including the effectiveness of their liaison with social
services offices and other third party agencies that can help
customers in difficulties.
Ofgem is also supporting work by suppliers to improve
the customer transfer process. This work has resulted in a series
of proposals that will provide more information to a new supplier
earlier in the transfer process. Ofgem will ask companies to
look into the practicalities of transferring information on vulnerable
customers to the new supplier when they switch supplier, including
the Data Protection Act implications of doing so.
RECOMMENDATIONS ADDRESSED TO OTHER GOVERNMENT DEPARTMENTS
Use of Fuel Direct
16. Fuel Direct would not be suitable for every
customer on benefits who owes money to energy companies. However,
we agree with National Energy Action that it "could develop
into an acceptable tariff option rather than [as at present] a
virtually moribund payment method of last resort." To achieve
this, eligibility for the scheme should be extended to a wider
range of benefits; the thrust of the scheme should be to enable
customers to prevent the accumulation of debt rather than just
to repay it when they are on the brink of disconnection; and the
administration of the scheme must be automated and made consistent
throughout the country so that the energy companies are not deterred
from using it by its difficulty, complexity and expense. The DWP
has, it appears, argued for years that what it was waiting for
was automated payment of benefits. The soon-to-be-completed move
to ACT provides an opportunity to revive Fuel Direct. We would
like now to see an account from the Government of how Fuel Direct
is to be improved, and a timetable for its implementation. (Paragraph
44)
The Government is grateful for the Committee's views
on Fuel Direct. The Department for Work and Pensions, which is
responsible for the operation of Fuel Direct, has already undertaken
to ensure both that the provisions of the scheme are consistently
applied and that the automation of scheme procedures is maximised.
However, the Government does not propose to modify the structure
of the scheme in the way that the Committee proposes. That proposal
is not compatible with either the Government's strategy of tackling
financial exclusion by encouraging more people into the financial
mainstream or its policy of smoothing the path from welfare benefits
into employment, which represents the best route out of poverty.
DWP provides further information on the Fuel Direct
scheme in an annex.
Priority Services Register
17. In its September paper, the Energy Retail
Association suggested a number of ways in which the Government
could help to publicise the Priority Services Register. It proposed
that health workers and providers of social services encourage
those eligible to register; that information could be targeted
at families on child benefit, and that leaflets on the PSR could
be made available in benefit offices, doctors' surgeries, schools,
and the offices of housing associations and local authorities.
All of these suggestions seem sensible. We ask the Government
to inform us which are being taken up. (Paragraph 51)
On 16 March 2005, the Energy Retail Association announced
its intention of establishing a fuel poverty helpline. The primary
purpose of the helpline will be to encourage vulnerable customers
to talk to their supplier either directly or through a third party,
such as a health worker, housing association, local authority,
benefits office or a range of other voluntary organisations.
Through DTI and DEFRA, the Government has also agreed
to examine how other departments such as DWP and DoH can support
companies' efforts to identify vulnerable customers and promote
a range of relevant services, including the Priority Services
Register.
The campaign being conducted by energywatch to increase
the take-up of the Priority Services Register is also welcome.
This campaign is being conducted with the help of a range of
partners including the Pensions Service of the DWP, Age Concern,
the Disabled Living Foundation and the EAGA Partnership.
Ban on disconnections
18. 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. (Paragraph 79)
The Government shares the Committee's views on the
need for the industry to put in place proper debt prevention and
management arrangements; the desirability of the industry's taking
measures, including the installation of prepayment meters, to
avoid disconnections; and the importance of the industry's billing
customers in a timely and accurate way. The Government considers
that the right to disconnect for non-payment represents a legitimate
measure of last resort, subject to the maintenance of stringent
safeguards. In this context, the Government welcomes the arrangements
put in place by the main gas and electricity suppliers in September
2004, which should ensure that, as far as possible, vulnerable
customers are not disconnected for debt. The Government notes
that Ofgem will monitor the effectiveness of those arrangements,
and that there is scope, if necessary, for further regulatory
action to be taken in the light of the operation of those arrangements.
2 All paragraphs in bold type in the Ofgem response
are quotations from the Committee's Report Back
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