Q
88Anne
Main: A sub-question on that. You mentioned your four
times estimated gas bill, and gas comes up regularly as an issue. Do
any of you have views on electricity display devices being a possible
distraction to moving forward to smart
metering? Allan
Asher: I just observe that the data that the EDD
gives you is only about electricity. It does not have current prices
and it cannot give you access to new prices or energy-saving tariffs.
It can be costly and it certainly will be a big diversion on suppliers.
I think that consumers who want EDDs should be able to buy them. But
why should there be a tax on consumers to install in all homes devices
that do not meet any of the tests when there is a roll-out of meters?
It is a huge waste of money and, I fear, a huge diversion in the debate
when we should be focusing on getting things right and making the
market
work.
The
Chairman: I am trying to be fair about this. John
Robertson was next.
Q
89John
Robertson (Glasgow, North-West) (Lab): I would like you to
explain the £60 that the consumer is paying? Do the companies
claim that they are spending the £60 or do they accept that the
£60 comes from the consumers? If so, should the £60 from
the consumer be matched by the companies to ensure that there is proper
development of energy-efficient designs and energy-efficient housing
and so
on? Allan
Asher: The current sum is more like £30, and
it comes from what is called the energy efficiency commitment. We are
just finishing the last phase of that and then it will change into a
new scheme in which the commitment will double to £60 per
customer for two fuels. As part of their licences to operate, the
companies are required to commit a certain sum, averaged out at that,
on measures for home insulation, energy efficiency, advice and various
other things. It is not disclosed separately. Perhaps there is a case
for that, but currently it is not.
Q
90John
Robertson: My follow-up question would be to Ofgem then.
What are you doing to ensure that there is some kind of visibility for
the money that is taken from customers that is then supposedly matched
by companies, and how do you ensure that the money is invested in a
proper
manner? Alistair
Buchanan:
There are a number of issues there. Let me
start with our administration role. We administer the energy efficiency
commitment, the carbon emissions reduction target scheme and the
renewables
scheme. That is not what you would regard as a regulator’s job
because it is more like an auditor’s job but I believe that we
do it very well. On behalf of consumers, we have to ensure that those
markets are administered fairly and according to the law. We also have
to ensure, as best we can, that there is no fraud in those markets
because large sums of money are involved. That is a very important act
that we do on behalf of the consumer. We are also keen to ensure that
the consumer has that information. One of the issues with regard to the
price increases that consumers had to endure in January is that perhaps
for the first time they are having to address the fact that they are
paying for renewable environmental schemes. Some £80 of roughly
£1,000 dual fuel average household bill is now a combination of
ROC, which is about £10, your energy efficiency, which is about
£35 to £36, and your European Union Greenhouse Gas
Emission Trading Scheme (EU ETS), which is around £30. So, it is
very much part of your bill, and there is only one way that that is
going, and that is up. The ROC will go from £10 today to
£21 by 2019 or 2020. I am not saying whether it is a good or bad
thing. This is Government policy. I believe that consumers are starting
to address what they are paying for. Allan raises a very reasonable
issue, which is whether the companies start to put that on the Bill. As
an aside, in my previous job, when I used to be involved with and
follow German events, there was a German company called EnBW—one
of Germany’s big four companies. It tried to put environmental
taxes on to its bill and the Government passed an action to make sure
that it could not. At that time, in 2001, it was an uncomfortable, high
profile issue that the German Government did not want on the bill.
Maybe its time has come,
however.
Q
91John
Robertson: You look at the fact that there is no fraud and
that everything is in order in that respect. How many checks have been
done efficiently and for the benefit of the consumer and not the
company?
Alistair
Buchanan: If these schemes operate, we are
effectively acting as a middle man between the company that has a ROC
certificate and the supplier that has been penalised. So we act to
ensure that the moneys transfer across. We effectively act as an
auditor and we stress-test that, as you would expect, through both
external and internal audit programmes. It is a very big issue for us
to keep control
of.
Q
92John
Robertson: I am sorry to press this point, but do you not
have any regulation on how the money is
spent? Alistair
Buchanan: No, the regulations are set down by the
Government. Therefore, the Energy Bill with the ROC banding, for
example, will merely be administered by us. That is not our
policy.
The
Chairman: A lot of Members are trying to catch my eye. We
have only 14 minutes left. I shall now call people who have not yet
asked a
question.
Q
93Martin
Horwood (Cheltenham) (LD): My main question is on
transmission and distribution, but may I ask a quick chaser to
Mr. Buchanan? Are you saying that if the energy companies
wanted to protect
shareholder value and simply pass on those costs
that you were talking about to the consumer instead, you would have no
power to stop them doing so.
Alistair
Buchanan: Sorry, I do not quite follow
you.
Q
94Martin
Horwood: I mean the kind of costs that you were talking
about that are coming on stream and which are likely to rise. If, as
Mr. Asher pointed out, they wanted to prioritise and protect
shareholder value and not pass the costs on to their shareholders in
effect but pass them on to the consumers, you, Ofgem, have no power to
do anything about that. Is that
right? Alistair
Buchanan: That is absolutely correct and it is a very
good question from my perspective, by way of looking at the market
dynamic, because a way of being competitive might be that you say,
“We will take some of the EU ETS charge, for example. Our
shareholders will take that because we are going to win customers by
offering a lower product and that will be part of our sales
pitch.”
Q
95Martin
Horwood: To move on to my substantive question, to
Mr. Winser and Mr. Smith, from the provisions
that are in the Bill, particularly relating to changes in the
renewables obligation and banding and so on, do you expect any changes
in the short to medium term resulting from this Bill in the patterns of
distribution and transmission in the
UK? Nick
Winser: From a transmission perspective, we would
expect to see a substantial increase in flows from the north of the
country to the south coming out of the encouragement of
renewables, in particular wind power and offshore wind. We are
projecting a very substantial increase in flows north to south. That is
the predominant flow and has been for many decades. The demand centres
are in the south and a large number of the renewables will be very
remote from that. We are projecting those increases and we are working
with Ofgem with regard to which projects should go ahead now to
reinforce the transmissions systems to carry those flows. We are also
going to work with Alistair’s people on what other project
should be built ahead of the demand to make sure that renewables can
come on quickly.
A large
number of renewables are held up in planning—about 70 per
cent.—and hopefully the Planning Bill will address that. The
next problem will be getting enough transmission capacity to get them
to the load centres.
David
Smith: The other interesting challenge that we
face—to a greater extent than the rest of Europe due to our
large population growth—is that large population centres have
grown up. That has a knock-on effect for the distribution network. The
transmission system is pushing south. There are large new centres
coming on line, particularly in east Anglia, which has not got large
amounts of wire. We have remote energy generation in terms of offshore,
and possibly nuclear. We have the North sea coast, the Teesside wind
farm and so on, so a lot of work will have to happen to strengthen the
existing network or to put in new build. If we take the example of
Beauly, we know that it can take an awfully long time. That started in
2001, but will not come on until at least 2012, so the plans are long
term.
Q
96Martin
Horwood: This is more a question for Mr. Smith
than for Mr. Winser, because it is about distribution at a
local level. If there were a radical shift towards a more distributed
system and if there were
more geothermal heat substituting for gas, more
small-scale community combined heat and power, wind power coming on
stream or more tidal flow in various locations, could your members cope
with the pace of change that we are probably looking for, or does more
need to be done in the Bill or
elsewhere? David
Smith: No. There are a couple of things that we
talked about. The Planning Bill is important, and there is still a big
skills issue that we must address. We need people who can build the
network. The majority of it was built during the 1950s and 1960s, and
those people are retired or coming up to retirement. We have a big
plan, and we are already doing a lot of work on building the skills and
getting the right people.
There is an
issue with the price of copper, and ensuring that we have the necessary
plant and equipment because 30 or 40 years ago, we probably had three,
four or five manufacturers in the UK, but they are no longer based
here, so we need long-term plans for 10, 15 or 20 years out to ensure
that we have the right equipment, the right people and the right
profiling to get everything in
place.
Q
97Mr.
Hugo Swire (East Devon) (Con): The discussion has moved on
a bit, but I want to revert to something that Mr. Asher said
about prepay meters and the way in which companies are
behaving. Have you ever encountered—or is this a common
problem—consumers who pay by direct debit and have variable
bills, and the companies stack up the direct debits and do not
volunteer to return the money immediately, so the consumer has to
prompt the provider to return it or to discount it from the next
bill? Allan
Asher: Yes, we receive thousands of complaints a year
about such issues. There are requirements in the rules that if someone
has built up a credit, they should be able to get it back within, I
think, seven days. Some companies have been rather tardy about
that. The bigger
problem was—it is now reducing—that some people did not
get a bill for two, three or four and on one occasion
seven years, and but then got a demand for immediate payment. I am
pleased that Ofgem has now outlawed that, and if a bill has not been
sent out for more than a year, that is too bad and the company cannot
recover the money. That has led to huge improvements, but there is,
sadly, still the administrative problem of tardiness in paying money
back. However, it is a reducing a
problem.
Q
98Mr.
Swire: But should it be incumbent on the provider to
reimburse the consumer after a certain number of days,
regardless? Allan
Asher: Absolutely. If you have overpaid for something
in any other marketplace, you would expect an immediate refund. There
is no reason why you should not expect that here. Some people are happy
to build up a credit, because it is a bit of a cushion into the winter
months, but that should be at the wish of the consumer. If someone
wants to do that, they should be allowed to do so; if they want their
money back, they should get it back promptly and without
fuss.
Q
99Mr.
Swire: What is Ofgem’s
view? Alistair
Buchanan: It is worth following this through. If
there is a serious complaint by a consumer, and it is not
handled properly by the company on the
prompting of energywatch, which we then follow
through, there is an ombudsman in place, and has been for two years
now, through whom the consumer can seek
redress.
Q
100Mr.
Swire: That is not a particularly good use of the
ombudsman, if I might say so. This is a mass problem, and it should be
incumbent in law for the provider to reimburse the
consumer. Alistair
Buchanan: There is a route
there. The
Chairman: I have four people wanting to ask
questions, and six minutes
left.
Q
101Dr.
Brian Iddon (Bolton, South-East) (Lab): Do you think the
20 per cent. by 2020 target will be hit if the Government intend to use
secondary legislation to control the renewables
obligation?
The
Chairman: There are no offers to respond. Would one of you
like to
answer? Nick
Winser: I am not sure that I can address the point
about secondary legislation, but the 2020 target is certainly
challenging from an engineering perspective. There is an awful lot to
do. We will need the Planning Bill and strong incentives. We will need
simple, clean structures and organisational models to get it done. It
is an incredibly challenging target for 12
years.
Q
102Albert
Owen (Ynys Môn) (Lab): I have two brief points.
First, Mr. Buchanan, I hold the citizens advice bureau in
high esteem, but is it really its duty to inform people about
switching, or is it the regulator’s duty to simplify the process
on switching? The buck seems to be being passed to a voluntary
organisation when the regulator should take a more robust
role. Secondly, on
distribution and the location of some of the wind farms that you said
were in isolated and often sensitive areas, will there be additional
costs in getting the transmission of some of the northerly ones on to
the grid system? Will Mr. Buchanan, and possibly
Mr. Smith, address those
points? Alistair
Buchanan: In terms of our working
relationship with the CAB, I believe, from all the comments I have had
from my team, that the relationship is working very well on both sides.
For us and energywatch, the key is to ensure that we can help to get
information to consumers. The CAB has to deal with those issues. As for
the extent to which its staff are trained to a level at which they feel
confident and comfortable with handling these issues, ultimately
anything that we can do to help must be a good idea. Clearly,
energywatch does a lot on that, as will the new National Consumer
Council. On
transmission costs, yes, there is a range of transmission costs. As you
know, throughout the past 20 years, the system has been based on the
concept of locational charging. The further from demand you are, the
higher the cost will be. There are issues regarding how the methodology
works and how it is explained to potential builders of and investors in
wind farms. For example, I spent an interesting week in the Hebrides in
September, when there was a lot of discussion about the connection to
the Orkneys. The charge for connection to Skye—I am going to use
figures to give an example—was around £24 a kW. The
charge for
connection to Orkney changed while I was there from £114, which
no one could really understand in relation to the price on Skye, to
£76. It changed again, because of the question about what kind
of standard is needed—N1 or N2. Those are technical standards
from the grid company. The price might be a lot lower depending on what
standard is used. Part of the issue—we
have discussed this with National Grid—is the degree of
confusion about how the system works and whether the methodology is
clear enough. On the back of that, we announced a major corporate
governance review at the end of last year, which is to open up the
rules and regulations within this sector. We are currently receiving
feedback from that, and when we have a chance to digest it, we will
have to work out how to take the project forward. The national grid
will be very important in that regard. You have put your finger on an
area of great concern, not only about the charge, but about how we get
there. What does it mean? When will it change? Those are the things
that we need to address going
forward. Nick
Winser: I was just going to add that, yes, additional
transmission infrastructure will be needed. It sort of depends on where
the renewables are, especially if a lot of them are up around the north
of England, or Scotland and above. It is worth bearing in mind
that the part of the bill that constitutes transmission is only about 3
per cent. of consumers’ bills. Even though we will do quite a
lot of work to reinforce the system, it is spread quite thinly across
the charging base, at about 3 per cent., so I do not think that it will
make a material difference to
customers.
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