Q
84Paddy
Tipping: May I ask Mr. Buchanan for his
comments? Alistair
Buchanan: There were two parts to the question. We
are very keen to take the switching message to Scotland, and I know
that Allan is as well. Switching in Scotland tends to run 2 to 3 per
cent. below the 18 per cent. churn that there was last year in England.
One of the substantial problems there is the housing issue. Housing
renovation typically costs 10 times more with some of the poorly
insulated housing in
Scotland. Looking at
fuel poverty, there are three elements to it—50 per cent. is
income, 15 per cent. is housing and 35 per cent. is the fuel bill. I am
not trying to belittle the fuel bill, but it must be taken
holistically. We are representing what we can do. We want to facilitate
the opportunity to switch on the fuel price side. Clearly, housing and
income sit with the Government and the instruments that they have.
Taking Government as a lead into the targeting issue, it is extremely
difficult to target the fuel
poor. The Warm Front
programme ensures that one third of the fuel poor do not have access to
it, which is an alarming statistic. With that in mind, Ofgem has
launched a very good initiative with Citizens Advice—I have some
of the guff with me—to ensure that its staff are well trained,
so that they can ensure that they get people to get the best deal. Part
of the problem is the confusion about what is the best deal. We have
also funded research with Bristol university, ward by ward throughout
the country, to try to analyse, through what we call our find
and fix programme, who the fuel poor are.
Some practical issues could be
addressed, such as returning to the days when a Department for Work and
Pensions secondee would visit a fuel-poor person with the local
company. Some macro issues, such as smart metering, can be addressed,
and I hope that they will be. There will be a debate about social
tariffs; but holistically, if you consider equalising the tariff, or
setting a particular tariff for the fuel poor, it will be worth
inquiring into how many people that might tip into fuel poverty. If you
add a certain amount, assuming you do not expect the companies to pay
for it, in which case I am sure that you spoke to them this morning and
asked them to do so, it will be worth inquiring into how much more it
will cost everybody else and what implications it will have for fuel
poverty.
Q
85Steve
Webb (Northavon) (LD): As you mentioned, we had evidence
this morning from the companies, and I have a follow-up question that
is germane to Alistair and Allan—one each if I may. I shall give
you both questions, so that you can get thinking.
To Ofgem, Rupert Steele,
director of regulation at Scottish Power, said that your analysis was
simplistic, that it did not recognise the £9 billion figure and
that it made long-term decisions about investment, so your suggestion
that we might have any of it back was naive—my word, but it was
implicit in his comments. I should be interested in your
reaction.
To Allan Asher of energywatch,
we asked about social tariffs, and I said that it spent tens of
millions on social tariffs, to which he said, “Yes, but we spend
billions on energy efficiency, and isn’t the most important
thing for the fuel poor not to give them more money to pay high bills,
or to make them pay slightly less, so that they pay less when they heat
the open air, but to spend billions on energy efficiency? And
aren’t social tariffs therefore a distraction?” In that
sequence, can you respond to those two questions?
Alistair
Buchanan: I am very happy to do so. You may have
noticed that we were invited to see the Chancellor a few weeks ago, and
the letter that was sent to us invited us to address what we called a
shopping list of ideas on fuel poverty, so it is encouraging that the
Chancellor wants to consider those issues. Among our shopping list were
to get smart metering rolling, to examine the DWP’s work with
companies on the ground, to get the Minister to join Ofgem when it
hosts a fuel poor summit—we are delighted that he will join us
in April—and finally, an idea that was not new.
We published the idea in April
2006 at the time of the energy White Paper. I was invited to offer
ideas, and we took the idea that we offered in April 2006, which was
that if the companies have been given a vast amount of free hand-out
because of the EU ETS free hand-out scheme—and they have
been—is there any opportunity for the Government to use some of
it for fuel poverty? The answer may be no. I do not know whether the
Government can do it; there may be issues about hypothecation, but that
is not my problem. We gave an idea. We are not a lobby group, but a
statutory organisation, and I am not lobbying for that idea. However,
it is an idea, and it was part of the shopping list that we gave the
Chancellor a few weeks ago.
Allan
Asher: Ten seconds on that question, and then I shall
turn to the question that you asked me. The £9 billion is not
the companies’ money but consumers’
money. That is where it comes from. In a highly
competitive market, the companies should be investing that £9
billion on low-carbon infrastructure, as intended, and nobody would
complain if they did that. However, it is obvious that some companies
are returning material portions of the money to shareholders. That
should not be happening. The money should be competed away, and in an
efficient market they would not have to claw it back, because
competition would force them to lower their prices. In a competitive
market, companies would not be able to get away with giving
shareholders sums of money above the long-term average cost of
production of the
power. The second
question, which is on social tariffs, is an important one. Again, the
companies are not spending billions on energy efficiency. The money
comes from consumers. It is part of the energy
efficiency commitment, which is a sum levied on everyone in this room
who pays gas and electricity bills, and it is going up to around
£60 per consumer. It will come from us, and the companies will
direct it more or less to energy efficiency
measures. The scheme
has been really good. It has saved a huge amount of carbon, but do not
for a moment think that the money is company money—it is
consumers’ money. Until now, there has been a target requirement
that about half of it should be spent on measures for fuel
poor customers: insulation, light globes and so on.
There will be a bit of a change in the future. The
money—not all of it—plays an important part in poverty
alleviation. It is highly complementary to social tariffs, not in
competition with
them. There are many
ways in which we currently levy consumers for various things. Consumer
prices, the climate change levy, the energy efficiency commitment and
the European energy trading scheme—all of those come from
consumers. Why is it only when we talk about some direct sum to the
most grindingly poor in society that we find it offensive that money
should be directed to them? I am puzzled by
that.
Q
86Dr.
Alan Whitehead (Southampton, Test) (Lab): I have some
questions on investment in transmission and in plant. First, clause 40
relates to offshore energy transmission and gives Ofgem several
responsibilities in respect of encouraging grid replacement and
enhancement on an offshore basis, particularly through offshore wind
renewables. Are you happy that the powers that the Bill provides are
sufficient to develop those processes in the time scale that is clearly
necessary? Secondly,
are you happy that the general imperative to increase investment,
particularly in large renewable plant, will be undertaken on the basis
of the present arrangements and brief of Ofgem, when probably at
present the quickest and most competitive replacement for plant that is
retiring is a combined cycle gas turbine power station with no combined
heat and power or any other saving device attached to it? The general
point of the question is whether the Bill is sufficient to enable the
shape of energy reinvestments to happen in the way that we now feel
that we need to direct
them. Nick
Winser: On the offshore transmission regime, we do
have concerns about the approach that is laid out in the Bill, which is
to auction the provision of offshore transmission. That has not been
done before. It seems to us that it is a complex, innovative and
uncertain way of approaching this task, which is very significant, as
the Committee will have discussed. Getting to the sort of level of
renewable deployment that we need to get to by 2020 needs some quick
and certain action. There has been talk of 33 GW of renewables
offshore. Twelve years is a blink of an eye against such a
challenge. In National
Grid’s view, we need to deploy simple,
co-ordinated, well tried and tested, regulated
transmission build. In short, we do not think that the proposed
approach to auction transmission offshore is going to be quick, certain
or in customers’ best interests. We do not think that it will
help us to get to the carbon targets. We think that it will introduce
delay. It would be better merely to extend the regulated transmission
provision offshore for ourselves and for the Scottish transmission
companies. Alistair
Buchanan: May I start with an overview in respect of
your concern about whether Ofgem can handle the new challenges? Over
the past five years, we have shown in our price control decisions that
we are very minded to the renewable task. In the price control review
of 2004, on the local electricity network, we increased capital
expenditure by 50 per cent. In the transmission price-control
review—National Grid’s review, two
years ago—we increased capital expenditure by nearly 100 per
cent. The renewable elements within that have been clearly identified,
and if they are such a large sum, we actually set the sums of money
aside for that
project. So there are four projects, effectively all in Scotland, under
the banner of transmission of renewable projects, for which the
consumer is going to provide £560 million in addition to our
normal five-year price control review. So we are extremely minded to
it. Crudely, I believe
that Ofgem, as an organisation, has been able to evolve because we have
gone from the privatisation compact of “RPI minus x equals
save” to “RPI minus x equals spend” to ensure that
we have a reliable, trustworthy and renewable connected network that
the consumers want. I feel confident about that.
On the specifics of the
offshore regime, the Minister put his stamp on the
non-exclusive competitive approach in March last year. The structure is
now in place. To
answer your excellent questions as a business manager, yes, I am
pleased that we have got the powers that we need to be able to do our
job as set out in the Bill, which means that we will be able to push
this forward quickly. I am also pleased that it is going to be paid
for, so there will be no worry about administration costs dragging down
the
process. David
Smith: I should just like to make a couple of points
about what happens when the transmission hits shore and becomes part of
the distribution system. The build will be in remote places. We will,
at the same time, have to look at our distribution network and whether
we need to beef up the network or put new networks in
place. I had a
conversation in this room a couple of weeks ago on the Planning Bill.
These things need to sit hand in hand, because we cannot end up with
wholesale pieces of the network sitting in planning for long periods.
We also have a major skills shortage, and we need to address it. It is
all about considering a series of stacking issues, rather than just
focusing on one level of
investment.
Q
87Anne
Main (St. Albans) (Con): I should like to take you back to
two things on your shopping list: smart metering and fuel poverty. Are
you disappointed that they are not included in the Bill? Following on
from that, you mentioned that some 52 per cent. have switched their
energy tariffs between providers. Have you done any analysis of that?
Because having mentioned that statistic, you threw in the fact that the
most disadvantaged—still the most disadvantaged—were
those on pre-paid meters up north somewhere, I think that is what you
said. Have you analysed who is switching? If so, is this something to
do with access to the internet or information or just being savvy
enough to negotiate a complex system of tariffs? I would like to bring
the two things together and ask if the lack of smart metering in the
Bill is something that you feel is a lost opportunity to allow more
people perhaps to switch tariffs or to engage with the best
tariffs?
The
Chairman: Who would like to take that
question? Alistair
Buchanan: I am happy to start the
answer to that question.
A few weeks ago in Parliament,
Paddy Tipping hosted a meeting on smart metering. The reason I start by
referring to that meeting is that I might have been unhappy at the lack
of smart metering in the Bill had I not gone to that meeting. At the
meeting, the director general of energy at the Department for Business,
Enterprise and Regulatory Reform made it quite clear that the Government
will make a statement on smart metering in the near future. Therefore,
I am excited by the fact that a statement will be made on smart
metering at some stage in the near future. Ofgem has an open position on
this issue. We favour the introduction of smart metering. There are two
models that have been put on the table; what is called the franchise
model, and the market mandate model. We favour the market mandate
model, but we are particularly keen to see a decision made on this
issue. Clearly, to an extent the decision and the timing of the
decision might be confused by the two-year pilot scheme that Ofgem is
currently running, but I was very encouraged by the announcement at
that meeting. To
answer your switching question, and I am sure that Allan has even more
up-to-date data than I have, you are absolutely right; around that
central figure, there is a range of very interesting issues. One such
issue is that, on gas pre-payment meters, the level is down at about 36
per cent. We must think about how we address that.
In terms of vulnerable and
fuel-poor people, you get quite an interesting range around that
figure. On the latest data that I looked at before coming out here this
afternoon, single mothers with dependent children are switching above
that level, whereas elderly people are switching below that level. So,
it is difficult to make generalisations once you start to break the
data down to see which part of the vulnerable customer group does not
appear to be taking advantage of this opportunity. We have to look at
the breakdown of that data and see how we can access those people who
are not doing so.
Allan
Asher: We say “smarter metering” rather
than “smart meters”, because we are not referring to a
lump of technology. Instead, smarter metering is the process of
equipping consumers with much better and much deeper
information about the services that they acquire, with up-to-date
information on prices and quantity, the ability to have time-of-day
tariffs, accurate bills and all of that. Most likely, it will be
provided by a lump of hardware somewhere, but the point is the services
offered by smarter metering and not the machine.
The key for us, though, is that
smarter metering allows us to do two hugely important things. First, we
will at last be able to get rid of what I think are these dreaded
“poor pay more”, or PPM, meters; you might know them as
pre-payment meters, but we know them as the “poor pay
more” meters. I gave you the example in the north of people
having to pay £486 a year more if they happen to be trapped with
a PPM rather than being able to get somebody’s internet tariffs.
That would disappear overnight; you would be able to switch from one
tariff form to another.
There would be lots of other
switching blocks as well. At the moment, if you are in debt you cannot
switch and there are millions of consumers in that situation,
especially if you are in Scotland. If you have a telemeter, that is a
technology whereby hundreds of thousands of people simply cannot
switch. We know that the elderly do not switch, and we know that
anybody on a pre-payment meter cannot switch using the website. Six
million people are prevented from effective switching. Smarter metering
solutions will tend to make a lot of that switching easier.
There
is also what I consider to be the clearly emerging evidence from around
the world that shows that, if consumers get this accurate, timely
information about their consumption and their options, they will use
less energy. People respond positively. At the moment, however, one in
three of our current bills are wrong, because they are based on an
estimate of consumption and not on an accurate read.
How can people make the market
work, or how can they conserve energy, if the information is so poor? I
received my own bill yesterday. The last four bills that I have had for
gas were based on estimates, even though I have an outside meter. I
have no idea what my actual expenditure was. Smarter metering would
almost immediately eliminate that as long as there is also a preference
for eliminating pre-payment
meters.
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