Select Committee on Welsh Affairs Written Evidence


Written Evidence from Energywatch

1.  INTRODUCTION

  energywatch is the independent watchdog for gas and electricity consumers in Great Britain. We provide free, impartial advice on a range of energy issues. We also take up complaints on behalf of consumers who are experiencing difficulty in resolving problems directly with their energy companies. In the last financial year, we dealt with 70,000 complaints and 137,000 enquiries on behalf of energy consumers across Britain.

  energywatch Wales employs 10 Consumer Advisers who handle the public's complaints and enquiries, taking over 16,000 calls from consumers per year in both English and Welsh. energywatch welcomes this inquiry and the opportunity to outline the experience of consumers in this area. In particular we will focus on the current provision of energy in Wales as it relates to consumers who are on low incomes or at risk of fuel poverty.

  During 2004-05 energywatch Wales received 10,000 complaints and enquiries from domestic and business consumers across Wales. The most common area of complaint for Welsh consumers, accounting for 47% of all complaints and enquiries, was problems with billing and account management. On average, 87% of consumer cases were closed within 35 days and 95% of all cases were resolved and closed within 66 days. Recorded customer satisfaction with energywatch's service in Wales was the highest of any of the national or regional offices at 92%.

2.  STRATEGIC ENERGY ISSUES

  The end of self-sufficiency in natural gas from North Sea fields and the consequent exposure to higher costs in the wholesale gas market are having a damaging effect on British consumers. A recent report estimated that the slow pace of liberalisation in Europe and the artificial link between gas prices and global oil prices could be costing consumers anything up to £10 billion a year. The Competition directorate at the European Commission has identified a number of features in the European markets that require urgent attention if consumers across Britain are not to continue to pay a premium on their energy bills, for the failure of other EU markets.

  The energy policy review announced this weekwill attempt to provide to reconcile the provision of a strategic framework for energy supply with the demands for security of supply, affordable prices and government carbon reduction and climate change goals.

3.  ENERGY PRICES

  Energy prices have risen dramatically since 2003. By January 2006 domestic gas prices will have risen by an average of 38% and electricity prices by 29%. The Department for Trade and Industry estimates that a 1% rise in energy prices could put an additional 40,000 households in England in fuel poverty. Similar estimates suggest a 5% rise could have the same effect on 30,000 households in Scotland. No such formula has been developed by the Government or the Welsh Assembly to measure the impact of fuel prices rises on fuel poverty in Wales.

  Recent price rises have been especially bad news for Welsh consumers who already pay more for their electricity than consumers in England and Scotland. At present consumers in Wales are paying 10% more for their electricity than consumers in the rest of the UK regardless of their payment method. Wales has historically suffered higher electricity prices on average compared with the rest of the UK. The explanation from the industry for the higher prices has been that there was little generation in Wales which meant they had to pay a higher Distribution use of system charge.

  Welsh consumers who use LPG to heat their homes are also at a disadvantage. They are not given the same notice of price increases, and are prevented from switching suppliers easily as they need to reimburse their supplier for the "kit" they use which enables them to use LPG in the first place.

  Huge prices rises are not only impacting on domestic and businesses consumers. The public sector in Wales is also suffering. Money that could go on essential public services is being diverted to meet the rising cost of energy. Between November 2003 and November 2004, the NHS across the UK saw its gas bill alone go up by £41 million—an additional 57%. In North Glamorgan the NHS Trust saw its energy bills rise by £450,000 between 2003-04 and 2004-05, equivalent to the cost of 80 hip replacements. North East Wales NHS Trust, which provides services for over 300,000 people, across Wrexham and Flintshire, saw its energy bill rise by £460,000 between 2003-04 and 2004-05, equivalent in cost to 230 major breast surgery operations.

  The impact on local authorities is equally alarming, Cardiff Council has seen its energy bills rise by an average of 31% in 2004-05 compare with 2003-04. A rise of almost £1 million. If this cost was passed on to council tax payers, each of Cardiff's households would see £9 added to their council tax bills.

4.  FUEL POVERTY IN WALES

  The Welsh Assembly is committed to eradicating fuel poverty among vulnerable households by 2010 and in all households by 2018.

  The widely accepted definition of fuel poverty is where a household needs to spend 10% or more of income to maintain a satisfactory heating regime. Any household spending 20% or more of its income on heating is deemed to be in severe fuel poverty.

  Recent research carried out by the Centre for Sustainable Energy (CSE) on behalf of the Welsh Assembly showed that in 1997-98 there were 360,000 or 31% of households in Wales in fuel poverty. It showed that 72,000 or 6% of households were in severe fuel poverty. At the same time, comparable figures for England were 22% and 3% respectively.

  The high figures in Wales were attributed to a combination of low incomes, poor energy efficiency of older housing stock, high fuel prices, high levels of under-occupation and high number of larger homes. Homes in rural areas had a higher incidence of fuel poverty, with the highest levels to be found in Mid Wales and South West Wales, areas with high concentrations of households off the gas network.

  Between 1998-2003 falling prices and rising incomes contributed to a reduction in fuel poverty numbers. Figures due to be published shortly in the Welsh Assembly's "Living in Wales" study on fuel poverty figures for 2004 put the number of households in fuel poverty in Wales between 130,000—170,000—roughly 12% of population. Whilst this demonstrates a considerable reduction from the 1998 figure, our expectation is that the true figure is likely to be significantly higher following the huge energy prices hikesof the past two years.

5.  FUEL POVERTY SOLUTIONS

Home Energy Efficiency Scheme

  The main tool used the by Welsh Assembly to tackle fuel poverty is the Home Energy Efficiency Scheme (HEES). The scheme provides grants of up top £1,500 for energy efficiency measures and advice for those in receipt of a range of benefits, or who have a child under the age of 16. HEES Plus offers grants of up to £2,700 for heating and insulation improvements to householders who are 60 or over and to lone parents with a child under 16. In both cases claimants must be in receipt of one of a range of benefits. A lower level of grant can be can be claimed by householders aged 60 or over who do not receive a qualifying benefit.

  The percentage of those removed from the fuel poor category after measures were installed was very low. This is possibly an indication that the scheme was not targeting effectively enough and not addressing the issues of the fuel poor, even though it was, and still is, the only vehicle in Wales targeting the fuel poor.

  Parallels can be drawn with the Warm Front scheme in England. In 2003 the National Audit Office concluded that there was a problem with the eligibility of the Scheme as around a third of the fuel poor may not have been eligible and around two-thirds of eligible households may not have been fuel poor. It also concluded that the heating and insulation measures available under the Scheme may have been insufficient to move households out of fuel poverty in at least 20% of cases, and only 14% of grants reached the least energy efficient homes.

  A review of the HEES scheme by the Welsh Assembly Government found that:

    —  Of the 24,124 households helped by HEES between March 2001 and January 2004, only 29% of which were considered to be fuel poor pre-intervention;

    —  Half of these were removed from fuel poverty after the intervention of HEES;

    —  The current criteria adopted for the fuel poor misses out those who are not on benefit and the eligibility criteria should to be extended;

    —  A fuel price increase of 30% would return almost all of the households moved out of fuel poverty (3,871) back into fuel poverty;

    —  Of 1,579 respondents 15% felt their fuel bills were a little or a lot more, 46% said they were about the same;

    —  11% of all respondents paid a little more on fuel bills and 5% paid a lot more;

    —  Although over a third had no problems listed 9% of households claimed their heating was inadequate and 21% had problems with draughts, which is of concern given that draught proofing is a HEES measure;

  Whilst the HEES is an important tool in tackling fuel poverty, providing advice and practical measures for consumers in Wales, it remains to be seen if it is as effective a means of helping consumers as it could or should be. energywatch would like to see better targeting of the scheme to fuel poor consumers and better measuring of success. At present HEES has a target which measures the number of homes assisted by the scheme. This should be revised to better measure the impact of the scheme in reducing fuel poverty, and on improvements of the energy efficiency and thermal comfort of the home assisted.

  Consumers who are not connected to the gas network are not able to enjoy the full benefits from the HEES. There needs to be a greater degree of flexibility to the scheme to allow these consumers to have central heating systems based on fuel supply more readily available in rural areas of Wales, such as wood burning or biomass systems, ground source heat pumps, wind or solar:

    —  The review of the HEES should be taken forward into a more flexible and targeted scheme that provides support to the most vulnerable regardless of their location or access to mains natural gas.

6.  COMMUNITY ACTION

  If fuel poverty is to be successfully tackled in Wales, it must be targeted through a co-ordinated approach at a local level by government incorporating a variety of agencies including the NHS, local authorities, voluntary groups, suppliers and consumer bodies like energywatch. energywatch has recently launched a pilot scheme in North Yorkshire to work with a variety of agencies and local bodies to tackle fuel poverty. If the pilot is successful we hope to roll this initiative out to other areas.

  There is a growing consensus that local agencies such as social services, primary care trusts and voluntary and community organisations which have good access to priority groups of energy consumers should work more closely with agencies providing specialist energy savings and benefit entitlement and consumer advice. energywatch believes that the particular circumstances in Wales where income levels, housing stock characteristics and the combined health and social services jurisdiction within the Assembly Government would benefit from this approach:

    —  The Welsh Assembly Government should explore the feasibility of community energy champions, embedded in local agencies but connected to the best available energy saving and consumer advice.

7.  DEBT AND LOW INCOME CONSUMERS

  As of June 2005, figures from Ofgem showed that levels of debt across Britain stood at 1.1 million gas and 1.3 million electricity consumers. The average size of debt for gas and electricity consumers was £165 and £163 respectively. The average time taken to pay off a debt was 51 weeks for consumers on standard meters and 96 weeks for those on pre payment meters. Those consumers paying off debt by this method was 500,000 for gas and 400,000 for electricity.

  Almost a quarter of gas and electricity consumers in debt owed between £100—£300.  At the other end of the scale, 5% of gas and 6% of electricity consumers had debts of more than £600.  Those figures may sound relatively low, but represent 55,000 and 78,000 consumers respectively, struggling with debts exceeding £600.

  Rising energy prices will mean more consumers in energy debt. These consumers are also likely to have council tax and water utility debt as well. A wider range of tools to prevent a debt epidemic are required.

  A significant proportion of energy debt is being repaid through pre-payment meters (PPMs) that have been imposed and calibrated to collect arrears at the same time as the consumer is paying for current consumption. For the majority of PPM users, this payment method represents the most expensive payment option. This combination of factors, plus the soaring energy prices witnessed in the last two years, will mean that many PPM users could have to make stark decision over prioritising essential items this winter. Whilst energywatch recognises that for some, PPMs are a preferred payment option and offer the opportunity to manage finances and budget, consumers may not know they are often being penalised by higher tariffs and standing charges. The Public Accounts Committee concluded in May 2005 that PPMs are the most expensive way to pay for energy, costing £60 more a year than payment by direct debit.

  At a time when suppliers are announcing two or three price rises within a twelve month period, some are proving incapable of recalibrating their PPM stock at a rate that keeps pace with the tariff changes. This can therefore result in a situation where some PPM consumers are left under the impression they are keeping abreast of their energy costs, only to be left playing catch up when their meter finally does get recalibrated to reflect tariff increases.

  For those not on a pre-payment meter, poor industry billing practice can and does lead to debt for many low income consumers. 9% of all consumers surveyed told energywatch that inaccurate estimated bills have led to them owing money to their supplier. This is a figure that looks set to increase as the grim combination of soaring prices and poor billing practices push those who are presently subsisting on the breadline into debt; or in industry parlance: transforms "good payers" into "bad payers".

  Accurate, timely and clear bills would help make a significant contribution towards debt prevention among consumers; allowing consumers to track their energy spend and seek help and advice at the earliest opportunity.

  The Government's own Fuel Direct scheme provides an effective tool for consumers on benefits to repay debt in a manageable way, but many consumers do not know it exists. The scheme, which forms part of the Departments for Work and Pensions' (DWP) Third Party Deduction Scheme, allows consumers to repay utility debts directly from their benefits at a fixed weekly rate not exceeding £2.85 per fuel type. energywatch would like to see the scheme extended to allow consumers to use it before they get into debt as a debt prevention tool.

  It is becoming increasingly important to make more effective use of existing resources as well as seeking new ways of assisting those in debt. Winter fuel payments are a valuable resource for older people in the colder winter months. It may be time to consider whether that approach could be extended in some form to other groups of disadvantaged consumers who have difficulty coping with fuel bills—such as disabled people and families with young children—who do not currently receive this type of assistance.

  It may be time to consider the idea of a reduced winter fuel payment, of £50 for example that is paid to all recipients of income support or job seekers allowance, or similar benefits, to help them with their fuel bills. This would be instead of the cold winter payments which are only paid if temperatures go below a certain level and do not acknowledge the recipients ability to pay his/her fuel bills:

    —  Government should put pressure on suppliers to ensure across the board equalisation of the costs of PPMs to ensure that consumers on these meters are not being penalised by crippling standing charges compared to those on consumers on standard credit meters. NIE in Northern Ireland have demonstrated that smart metering technology can reduce PPM costs to below those paid by standard credit consumers.

    —  A reformed Fuel Direct scheme to allow consumers to use it as a budgeting tool before they get into debt. We believe such reform would be consistent with the government's financial inclusion agenda and help consumers avoid debt in the first place.

8.  CONSUMERS OFF THE GAS NETWORK

  Approximately 20% of the 1.2 million households in Wales do not have access to the gas network. This means that these 240,000 households are unable to take advantage of the full benefits of the energy market, and often end up paying more for their energy supply, especially in winter when consumers need to heat their home for longer. Consumers living off the gas network pay on average 40% more to adequately heat their homes.

  The heating system or appliance and the fuel type used in heating a dwelling are significant factors in fuel poverty. Efficient and economic space and water heating are crucial to the provision of affordable warmth. The number of fuel-poor households who do not have access to a mains gas supply are therefore excluded from what is currently the most economic form of domestic heating.

  Any network extension is dependent onthe gas network company being able to make a return within a reasonable time frame. Transco or Wales and West Utilities can only seek to recover costs from households for a period of five years following extension of the network. In effect this provides an incentive for some householders to defer connection until the end of this period when the only charges they will incur are the comparatively low cost of connection to their homes.

  Of course there are additional costs that will accrue to householders since, to benefit from a new gas supply, they will have to invest in a new central heating boiler (44% of households off the gas network have non-mains gas central heating). In these circumstances it is not surprising that there have been very few network extensions in recent years. Most activity has taken place in the new-build housing market where almost all target households can be connected to the pipeline and therefore return value to the utility in a twelve month period.

  Llay, near Wrexham, has recently become the first place in the UK that has delivered a partnership solution to extend the gas network in an area that previously would not have been commercially viable at nil cost to the local community. The Assembly Government has been involved in this project through the HEES.

  As important as the extension of the gas network is the applicability of microgeneration and embedded generation technologies in a domestic or community context. The Government is developing a strategy for microgeneration which will hopefully reduce the costs over the next few years. Such installations have the potential to augment energy supply for those communities unable to benefit from cheaper gas heating. energywatch believes they have a critical role to play in the alleviation of fuel poverty in communities which are off the gas network and which are unlikely to be connected:

    —  energywatch believes that Wales should be at the forefront of the emerging microgeneration market. The state of the housing stock and the fact that many households are not connected to the gas network in rural areas means these locations could substantially benefit by engaging communities in sustainable energy projects and at the same time reducing energy costs.

9.  ENERGY EFFICIENCY

  In a recent survey by energywatch of pensioners in Wales, 79% said energy efficiency was the most important energy issue for them. At a time when the money that can be saved from switching supplier is diminishing, consumers are correctly identifying energy efficiency as the simplest method to reduce their energy bills. However there is still generally low understanding about consumption within the household.

  energywatch believes that better information about energy saving and easier ways of translating that information into observable change in consumption patterns in the home would be one of the most significant contribution to the eradication of fuel poverty. Smarter metering technologie shave the potential to provide consumers with timely, up to date information at the point of use which enables consumers to see the impact of the energy saving measures or investments in financial and carbon saving terms. A number of trials and examples from overseas and within Great Britain has illustrated that improved information can reduce consumption, allow people to budget more effectively and allow supply companies to improve the services they deliver to their customers.

  Once armed with more accurate and useful information about their energy usage and associated costs, consumers will be more likely and empowered to seek energy efficiency measures from their suppliers, grants and other schemes:

    —  Observable and measurable impacts ofenergy saving actions in a domestic or business context arecritical to turn positive messages into positive and sustained behavioural change. The provision of this information in a domestic context should become part of a comprehensive fuel poverty strategy.

December 2005





 
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