Examination of Witnesses (Questions 420-439)
MR DUNCAN
SEDGWICK AND
MR RUSSELL
HAMBLIN-BOONE
29 NOVEMBER 2006
Q420 Chairman: If that is the case,
has anybody done any work to relate different types of tariff
structure to potential carbon savings?
Mr Sedgwick: Not that I am aware
of. I am not aware of any of my members having done that. Certainly,
there has been work done, as you quite rightly say, in other parts
of Europe, and I am only aware of parts of Europe they may do
it elsewhere in the world but I am not aware of that, but certainly
in Europe that is very much the way that it is done. Funnily enough,
many years ago when I first joined the industry they were called
load limiters which was almost like the size of a fuse which was
a little bit of a crude way of doing it. I think, once again,
if one starts seeing the changes to the type of metering technology,
because the concept of smart metering is that you can communicate
to the meter and from the meter, so it goes both ways, once you
can start communicating to the meter, and, for instance, in Italy
they have spent considerable numbers of euros in the last five
years in actually changing their electricity metering stock, there
is a different type of challenge for us here because we tend to
have electricity and gas packaged together, certainly sizeable
numbers of customers have them packaged together. They have a
different type of infrastructure as far as energy, it is a vertically
integrated infrastructure. They have spent a lot of time and they
can now communicate so they can take the supply off, they can
reduce the amount that is being used. All of that type of thing
is why it is important for us to have the levels of investment
over the years ahead and to have the right infrastructure and
to have a common approach within our competitive market for the
way in which smart metering is used. If we lose that opportunity
now to put smart metering into this country we will lose one of
the best opportunities we have to revolutionise the energy that
is used in the home.
Q421 Patrick Hall: In your evidence
you refer in paragraph 1(vi) to only 3% of people in the UK say
that they would change their long-term energy use if they had
a smart meter. I am not sure what that tells me because the value
of that figure depends upon people's understanding of what smart
metering is. That figure may mean that very few people understand
what it is or that we all understand what it is and would still
not change our habits. I want to confess that I do not understand
smart metering. I have heard it mentioned all afternoon and read
about it but simply as a title, "smart metering". What
does it mean? You have said something about it communicates in
various directions, what does it actually do and can you give
some principles behind what smart metering is supposed to do and
how it will effect consumption?
Mr Sedgwick: I think you very
neatly summed up the problem that the sector has at this moment,
which is what exactly do we mean when we use those two words,
"smart meter"? It is used extensively around the world
but it does not necessarily mean the same thing. People will call
a smart meter a meter where if you drive down the middle of the
street as a meter reader with an electronic zapper you can download
meter readings. That is regarded by some as a smart meter. Our
view is that you have to be able to communicate to the meter to
take information off it like meter readings. You need to be able
to communicate to it to take information off and you have to be
able to have a situation where you can go to it and it can come
to you with information. You would be able to say it to it—
Q422 Patrick Hall: Who is "you"?
Mr Sedgwick: Us being the supplier.
One of the things we are currently doing in association with Ofgem
is a piece of work to screw down completely the definition of
what is a smart meter. That work is ongoing literally as we speak
and is a project which is being run by my organisation, the ERA,
and we expect to deliver that in the early part of next year.
For the first time though what we are doing is not only just involving
ourselves as suppliers in that, but we are talking to the meter
manufacturers, the meter operators who are out there, to Ofgem,
to the DTI and to Defra. What we are seeking to do then is to
have a common definition and a set of standards that any meter
which goes into the network has to have. If I give you one of
the issues that we are debating—so I have not got the answer
to this—it is does every meter that goes onto the network
have to have a prepayment capability? Should it be able to be
used as a normal meter as well as a prepayment meter? It is incredibly
expensive and time consuming whenever one has to go out to change
a meter from a standard type to a prepayment type. Some customers
like one as opposed to another, and in some instances that is
the appropriate way of dealing with it but it is very costly.
What we have to explore with the meter manufacturers is if you
make that part of the standard build—it is a bit like the
difference between new build and retrofit—would the cost
of that be tiny in comparison with doing any form of retrofit?
Q423 Patrick Hall: Yes. That is interesting
because in my confused state I thought that smart meters were
being portrayed as something the householder, the customer, would
communicate with, look at or understand their own household domestic
consumption better through being able to look at some device.
Mr Sedgwick: That is the second
part.
Q424 Patrick Hall: That is another
meter?
Mr Sedgwick: No, that is the second
part of it, because one of the things that is possible to do is
to put a visual display device and you could make it as part of
the meter, but our view would be that probably is the wrong idea
given where the meter is located. If the meter is in the cupboard
under the stairs, you are not going to look at it very often;
if it is in the garage, if it is an outside meter box, you are
not going to have some form of visual display device. One of the
things that we do not know, and there is very limited information
really anywhere around the world, is what that will do to consumer
behaviour. We heard, I thought, some very interesting things from
B&Q as to the type of units they are starting to sell both
in an individual "plug your product into this and show how
much you are using" as opposed to some form of stand-alone
device. Once again, we are talking to Government; our concern
would be that we have heard from some of you, "Oh, we will
just have the display devices". If you just have the display
device and you do not change the fundamental meter, the problem
with that is you will never give to the meter the capability,
say, for this two-way exchange of information. Where the business
case is as far as the companies are concerned for doing this is
them being able to drive against their cost base. The point I
made a few minutes ago to Sir Peter was to have a position where
companies are going to be in a position of changing or reducing
energy demand rather than being about increasing. That is a huge,
radical alteration to the whole way our sector has operated for
tens and tens of years. That requires very different types of
devices in the home for us to be able to do that.
Q425 Patrick Hall: The reference
to only 3% who said they would change their long-term energy use
really suggests that your approach to smart metering is that the
public either are not interested or do not know about it and,
therefore, there is a whole job to be done there.
Mr Sedgwick: I think there is
a job to be done, but I think smart metering is not the solution.
Smart metering is part of an overall package of issues. Intuitively,
we can look at this and say it feels like we should be able, with
smart metering, better customer education and that sort of thing,
to see a greater change in consumer behaviour and thus energy
demand, but too much of that at this moment is intuitive feel.
Mr Hamblin-Boone: That is important.
Feedback devices can be regressive if we are looking forward to
a future technology such as smart metering and it is important
to note that the Government is looking, for example in the EEC3
programme, for there to be two million feedback devices to be
put in by suppliers in order to attract some EEC credits. That
is a bit of a quick fix, and that is something they are also looking
out for in the EU Directive on Energy Services, can feedback devices
mean we can tick the box on providing real-time information to
customers about their energy use? We need to be a bit smarter,
if you excuse the pun, and future-proof the technology we are
getting there and not just doing a quick fix which requires getting
into properties and then in a few years' time thinking, "Well,
smart metering is a good thing after all and now we have got to
start doing it all over again". I caution that we do not
end up going down that feedback device route as a short-term answer.
Chairman: Before Madeleine takes up her
line of questioning I think, Peter, you had one further one.
Q426 Sir Peter Soulsby: Yes, it is
your definition. A number of your members offer what are broadly
described as "green tariffs" and I think some of them
recently got into trouble with the Advertising Standards Authority
over some of those descriptions. Do you think there is a need
for more clarity in the definitions of those green tariffs and,
indeed, perhaps some form of accreditation?
Mr Sedgwick: We operate in a competitive
market and in a competitive market people want to have different
offerings. From the point of view of green tariffs, I do not think
that the suppliers would object to a situation where that is clarified
as to what is green and what is not. What they decide to offer
within a definition like that I think should be for them to decide
how best to operate in that competitive market.
Q427 Sir Peter Soulsby: Has it not
got to the point now where some form of external accreditation,
perhaps with you playing some part in that accreditation, would
be helpful for all concerned?
Mr Sedgwick: Yes. I think one
of the things we would very strongly say is that self-regulation
is far to be preferred and, certainly, I would have no objection
to taking away a view from this Committee that might be something
which perhaps we ought to look to try and ensure we do not have
problems in the future.
Q428 Mrs Moon: Sometimes it feels
while we are sitting here listening to the evidence that we are
fiddling while Rome burns. You said earlier that we have sold
electricity in the same way for tens and tens of years. Is part
of the problem that it is the electricity companies which are
trying to sell the message of energy conservation and there is
almost a public distrust of the information they are getting with
their bill that says, "We can reduce your bill"? Are
the energy companies the people to be trying to sell the conservation
and the consumption message? Are they efficient and effective
at doing it and, if not, who else should be doing it?
Mr Sedgwick: Sorry, it will sound
wrong, but that is a really excellent question because I think
you have hit a genuine problem smack on the head. We do have a
problem of public perception. There is a public perception of
us that "You would say that, wouldn't you?" We found
exactly the same issue in the area of fuel poverty where any one
of the companies could say, "Look, we have got all these
wonderful schemes that are available. We could do this, we could
do that", and what we found was that customers will not come
to us, they do not want to speak to us. We have been trying in
the area of fuel poverty to do some things about that. We have
got an initiative called the "Home Heat Helpline", which
is an independent helpline that we run. It is funded by the six
suppliers but we, as the ERA, run that in order to try and move
this away from these public perceptions. I think that it is a
sad but true fact that some of the challenges which the last two
or three years have seen with prices increasing is that there
is public scepticism. I do not think that we should sit here though
and say, "Oh, well, that means that it is not down to us
to be involved". I think what we have to be prepared to do
is to say that on occasions we do not front things, so it may
well be the best way of tackling the issue is for us to involve
external third parties to do some of that work for us. What that
has to be based on is incentivisation to us that there is not
just the big stick to hit us with but to say if you are prepared
to do that and it can, for instance in the area of fuel poverty,
be government saying, "We would like you to do this, we are
prepared to come in as well with some government money, perhaps
largely supplier money", but there is a little bit of both,
we have to be realistic that to move from a position of "Well,
you are selling energy and you are trying to sell more" to
"We now wish you to become organisations who sell less"
is going to be a considerable challenge to us as a sector. The
one thing I would say is that we are very, very keen to be up
to that challenge and involved in that. I believe we are prepared
to be realistic about where those things are very much competitive
market, need to be branded by the individual companies and where
the companies, are prepared to say, "No, we will come together
here, we will not try and brand this competitively"—as
I say, I think the Home Heat Helpline is an example where it is
new money coming into the sector, this is not recirculating stuff
that we have done before—yes, I believe it is a challenge
but I believe it is one where we, as an industry, can very much
step up to the mark in order to do that.
Mr Hamblin-Boone: It is one where
if you are going to create a market of energy reduction and it
goes for all sectors, not just the energy sector, you have to
look at cost savings elsewhere. One of the things that this industry
can look at, and perhaps smart metering going forward can facilitate,
is the cost savings you can make with billing and metering and
debt recovery and all of those administration costs. Equally,
other sectors that emit a lot of carbon, like the transport sector,
might start to look at where they can reduce costs as well and
then collectively you can get to the point where you have energy
reduction over energy production.
Q429 Mrs Moon: One of the things
I talked to my constituents about, which has just come to me,
is that they get cold calls saying, "We can cut your energy
supply, we can help you do that" and they are automatically
switching off because they feel they were caught when they were
asked to switch supplier. There is an overall distressed level
that I am picking up and it is how you get over that barrier,
information in the bill, people are so used to getting it, whether
it is with their Sunday papers or their bills, this is the way
to get a cheaper tariff, they do not even read them. I wonder
how we get over that hump to create some trust and some understanding
that that is a genuine role which you are trying to fulfil.
Mr Sedgwick: I would love to believe
that if we did one thing that would solve the problem. Clearly
it is nowhere near as simple as that, I think it is about doing
a collection of issues. I think on occasions it is fair to say
we are, certainly in the last 18 months or so, a sector that has
had a certain amount of publicity. It is quite hard to pick up
a newspaper or listen to the radio or television without having
some story or another to do with energy. I think that as a sector
we take our overall corporate social responsibility very seriously,
we are doing a great many things. The challenge is always going
to be on us, how do we change the public perception and, let us
be fair, if you went back to when competition opened up we probably
did not perform anywhere near as well as we should have done in
the way that we did selling. We have fixed that and it is an ERA
run code of practice in this area. We have hardly any issues now.
Does that mean we have none at all? No, unfortunately, we do not
have none at all. As far as billing is concerned there is always
a challenge with how well one bills, how accurately one bills.
We send out 200 million bills a year.
Q430 Mrs Moon: And how readable those
bills are!
Mr Sedgwick: I completely understand
that and it is a constant issue for every one of the companies.
Every company when it puts these bills out does market testing.
Does that mean that no bill is ever inaccurate or no bill is ever
unclear, I would love to sit in front of you and say that is not
the case. Out of 200 million, we perhaps do not have anything
like the bad performance that some people sometimes say. We have
to accept that is the marketplace in which we work. Our challenge
is to try and ensure that, yes, what we do directly with customers
is good and clear, et cetera. We have to then say we work
with third parties in order to do that. A number of the companies
have third party arrangements because one of the things that we
do very strongly believe is that it is those third parties who
are much more credible. With the Home Heat Helpline we have been
working, and will continue to work, with third parties who we
very strongly believe are the people who are trusted, whether
that is Age Concern or Help the Aged, or Gingerbread who we have
worked with for single parent families. What we believe is that
by using their logo and almost keeping ours much lower, the credibility
is stronger and we have things that we can offer to the consumer
in order to help them.
Q431 David Lepper: I do not know
whether my recent experience is common and helps to pinpoint that
kind of distrust. I pay by direct debit and I got a notice from
one of my suppliers a few weeks ago telling me they had assessed
my energy use and they were going to suggest that I paid £25
a month more by my direct debit. I assessed my energy use and
said that I would offer them a tenner. They came back to me and
said, "We have looked at it again, what about a fiver?"
Now, that does nothing to convince me as a consumer that that
company is after anything other than my money. I suspect, because
I have talked to a lot of people about this and I have discovered
a number of people who have had exactly the same experience, that
is an issue that helps to spread the kind of distrust that Madeleine
has referred to and why your members have got a huge hurdle to
overcome.
Mr Sedgwick: One of the things
I have found in the three years or so that I have done this job
is there are a number of issues where certain things could be
done better and people do sometimes say to me, "Why are you
doing this" and "Why are doing that"? Clearly,
the problem with all of this is—cannot answer the specifics—is
that common practice that you need to pay £5 but we have
asked you for £25? No, I do not believe it is. Why would
that be done? I really do not know. Is that a deliberate ploy
to try and overestimate? No, it is absolutely not because if you
overestimate and you are continually doing that, you end up with
a substantial credit on someone's bill, it might give you a bit
of a cash benefit but it sure as heck does not give you a good
PR benefit with that consumer and they will come on to you in
fairly high dudgeon and say, "Look, you have got all my money,
what are you doing about this?" That, as far as a supplier
is concerned, can lead to, "I am fed up with you, I am going
to switch". I think one of the things each of the companies
has to do is ensure that they have accuracy in their procedures.
It is not about being prepared to accept the fact that, say, overestimating
usage is an acceptable position for anyone. No, I do not believe
that is widespread common practice.
Q432 David Lepper: I have spoken
to at least six people who this has happened to in the last two
or three months, so forgive me for doubting you.
Mr Sedgwick: I am happy to look
at any individual circumstances.
Q433 Chairman: Do you think you ought
to run off to the Ofgem reception before they all disappear and
you could get that taken up? On this question of billing, some
companies, we are told are going to try and make them not just
easier to read because I read my gas bill and trying to make the
translation between units and something that related to energy
required a certain amount of advanced mathematics to get to that,
but this inquiry is about how citizens can make a contribution
to reducing carbon emissions and yet when you get a bill, whether
it be for gas or electricity, there is zero information on it
to translate the actual usage of the commodity energy in whatever
way you buy it to actual carbon or carbon dioxide emissions. I
gather some companies are giving thought to being able to communicate
that information. Why is everybody not doing it? Secondly, where
you have got an established relationship with your supplier they
will have the trend information, whether you are going up or down,
for example they could produce your last three quarters of bills,
ahead of smart metering, they could give you smart information.
Mr Sedgwick: Yes.
Q434 Chairman: Why are we not seeing
a universal application of the knowledge you have already got
to make an immediate contribution to involving the public in thinking
more about the consequences of their energy use's action?
Mr Sedgwick: I think what you
see is within a competitive market each of the companies are thinking
about this; some of them are slightly further developed than others.
I think that you are seeing at a later session a couple of companies
and that may well be a good question to ask them. If you do not
mind, it would be difficult for me to talk about what certain
companies may or may not be doing.
Q435 Chairman: Your organisation
takes a leadership role on behalf of your industry.
Mr Sedgwick: Yes.
Q436 Chairman: And I want to know
whether or not you are advising these companies that this is the
route down which all of them should go if they are going to be
able to give meaningful information to the consumer ahead of the
obviously very expensive move to interactive or information-bearing
metering which does not currently exist.
Mr Sedgwick: We certainly believe
in providing more information and better quality information to
consumers. The one thing to stress though, if you look at your
electricity bill, is 80% of the information on the bill is something
we are required to pass on to customers whether by legislation
or by regulation. My view would be a very, very strong one that
the bucket is full and some stuff has to come out of the bucket
before we put further information into it. In other words, certain
information that we are currently required to have on the bill,
we are talking to Ofgem on how to try and get them to say, yes,
they are quite happy for us to remove that. That would leave more
space and the very things you were talking about can be put on
to it.
Mr Hamblin-Boone: The Energy Services
Directive, the EU Directive that I referred to earlier, will require
energy suppliers to put a graph on the bill so they can compare
year to year but, as with any kind of comparison, there is always
the anomaly that for some reason or another your energy consumption
has changed perhaps because one of your children has left home
or something like that, so it is always going to be very difficult
to make that kind of comparison. By saying a certain number of
terawatt hours or whatever that you are saving, what does that
mean to the consumer, so you have to keep it simple.
Q437 Chairman: That is not an issue,
is it really?
Mr Hamblin-Boone: You have to
supply the carbon units.
Q438 Chairman: It comes down to the
fact that B&Q, as retailers, have to synthesise complex messages
into sentences which their customers, of all shapes, sizes and
backgrounds, can understand. What I am saying is that the current
bills are incomprehensible. If you are going to start talking
about kilowatt hours or whatever it was on the last gas bill I
looked at that does not convey anything but something relating
to what we are talking about, which is carbon and carbon dioxide
emissions, within the bounds to also be able to communicate whether
you are going up or down, that is very simple. You are right,
it has got to be understandable. Let us move on in the remaining
moments that we have. I attended a seminar this morning organised
by the Smith Institute at which an adviser to the Chancellor reminded
us, as if he had just discovered it, that there was in the Energy
Review, a document recently published, the idea—a revolutionary
idea, he seemed to suggest—that there should be a limit
on the amount of energy which enterprises could sell. We encountered
that as a Committee when we visited California and what we discovered
there was that power companies had effectively a lid put on their
generating capacity. The only way they could have more power to
sell to new customers or those whose demands were increasing was,
by definition, to reduce the demand for the existing customer
base, so they were going around doing everything from funding
the replacement of old, inefficient systems to changing light
bulbs in retail premises. That is pretty revolutionary stuff for
a country that is not supposed to be fully engaged in the climate
change agenda. If that kind of thing works in the United States,
how would your members react to having that kind of constraint
imposed on them here?
Mr Sedgwick: That would very radically
alter the whole way in which the market works. There is a sizable
amount of work done in the domestic sector; the interesting thing
is there are relatively small amounts done perhaps in the commercial
sector. I always tell the story of when I come into London on
a Monday morning. In order to get to the station where I live,
I have to drive through a small industrial estate where there
are half a dozen major car showrooms and, of course, at six in
the morning every single one of those car showrooms is ablaze
with light. I can confirm this because I have stopped and looked
at each one over the years and there is no-one cleaning them and
I can absolutely confirm at a quarter to six in the morning there
is no-one buying cars. What that means is there will be a whole
change in approach to saving, to switching off, to doing things
completely differently. Would that type of obligation rather than
incentive work? I would be strongly of the view that incentivisation
is the way to go with this, so to start incentivising companies
to doing things differently, where perhaps the costs that are
incurred in doing that can be offset against other costs and that
requires not just the companies to change but requires a completely
different mindset from government as to the way in which the whole
energy sector would be regulated and that sort of thing. Could
it work? Yes, it probably could work but it is a huge, huge step
in a very different direction.
Q439 Chairman: The reason I raise
that is if you go to the road transport sector, because of the
pressure of the imposition of emission limits, for example, the
industry has moved forward in a very comprehensive fashion with
a series of voluntary arrangements where the industry has agreed
to make further changes to reduce emissions of motor vehicles,
so in other words they are fully participating. There are many
other factors which inevitably affect that, including consumer
demand for more efficient cars, but the impression I get almost
from listening to what you are saying is that the industry is
always going through the motions and nodding in the right direction
for this, but it will only do something if somebody comes along
with a big stick and hits it very hard.
Mr Sedgwick: No, that is absolutely
not the case. I think that the industry has shown for a sizable
number of years, both in the retail bit that I deal with and in
the environmental issues that surround power stations, whether
those are new power stations or retrofitting kit into old power
stations, they want to dramatically reduce emissions from those.
These are not small amounts of investment, these are vast, vast
sums of investment, so I think that the industry has shown it
is not just going to wait until it is hit with the stick. The
way forward here is to be very clear that if the industry is prepared
to do this, there is something in it for them to do it, not to
just revert to "We will sit here and wait until someone screams
and then we will do that", so I absolutely believe we are
not a sector that is doing that sort of thing.
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