Memorandum submitted by Energy Action
Scotland
INTRODUCTION
Energy Action Scotland (EAS) is the Scottish
charity with the remit of ending fuel poverty. EAS has been working
with this remit since its inception in 1983 and has campaigned
on the issue of fuel poverty and delivered many practical and
research projects to tackle the problems of cold, damp homes.
EAS has worked with both the Scottish Government and the UK Government
on energy efficiency programme design and implementation.
EAS welcomes the opportunity to submit written
evidence to the Business, Enterprise & Regulatory Reform Committee
Inquiry into possible anti-competitive behaviour in the UK's energy
market. EAS is primarily concerned with the impact of energy regulation
policy on the fuel poor, low income and other vulnerable consumers
and this response concentrate mainly on aspects of the inquiry
which are likely to have an impact on these customers in Scotland.
FUEL POVERTY
IN SCOTLAND
The Scottish Government is required by the Housing
(Scotland) Act 2001 to end fuel poverty, as far as is practicable,
by 2016 and plans to do this are set out in the Scottish Fuel
Poverty Statement. The number of Scottish households living in
fuel poverty dropped from 738,000 (35%) in 1996 to 286,000 (13%)
in 2002. Half the reduction was due to increases in household
income, 35% to reduced fuel prices and 15% to improved energy
efficiency of housing.[75]
The most recent figures from the Scottish House Condition Survey
Key Findings 2005/06 Report show an increase to 543,000 households
living in fuel poverty in Scotland in 2005/06, representing 23%
of the total.
According to figures produced by Communities
Scotland,[76]
for every 1% rise in fuel prices an estimated 8,000 more households
would go into fuel poverty. EAS estimates that there are currently
700,000 households, almost one in three, in fuel poverty in Scotland.
This significant increase in fuel poverty is widely accepted to
be due to the dramatic increases in domestic energy prices and
the additional price rises announced recently will exacerbate
this situation.
EAS believes that the Scottish Government's
target on the eradication of fuel poverty can be met but only
if significant additional resources are directed into fuel poverty
initiatives and therefore EAS is calling on the Chancellor of
the Exchequer and Scottish Ministers to use the extra VAT revenue
generated by energy price rises to boost programmes aimed at ending
fuel poverty.
SPECIFIC ISSUES
THAT EAS WOULD
LIKE THE
COMMITTEE TO
CONSIDER:
WHETHER
THERE IS
EFFECTIVE COMPETITION
IN THE
WHOLESALE MARKET
FOR GAS
AND ELECTRICITY
EAS does not accept that the competitive market
is operating effectively, particularly for vulnerable customers,
and is pleased to note that Ofgem has said that it is considering
ways to help address this issue. In the consultation document
on its Corporate Strategy for 2008-13 Ofgem stated that Britain's
energy market is the most competitive in Europe, but EAS does
not believe that this is a relevant comparison given that the
European energy market is not yet fully open to competition. Indeed
it would appear that the impact of the European energy market
on British energy consumers is mainly negative. EAS does not believe
that the market can provide all the answers for vulnerable and
fuel poor consumers particularly at a time when high energy prices
are pushing more consumers into fuel poverty.
EAS recognises Ofgem's primary duty is to protect
the interests of consumers by promoting competition and its secondary
duty is to pay particular attention to the needs of vulnerable
consumers. Many vulnerable consumers are either unable or unwilling
to take advantage of the benefits of competition; it is therefore
essential for Ofgem to continue to use regulation in order to
safeguard the interests of these consumers. EAS is pleased to
note that this issue has been acknowledged by Ofgem in its Sustainable
Development Report for 2006. EAS would like the committee to consider
whether the current duties of Ofgem should be changed to ensure
that there is a stronger focus on the needs of vulnerable consumers,
until such time as fuel poverty targets have been met. Indeed
EAS suggests that this should become Ofgem's primary duty.
The conventional wisdom is that customers who
receive poor service will switch to another supplier but EAS does
not accept this assumption, particularly as many vulnerable energy
consumers in Scotland are unable to switch suppliers irrespective
of the level of service they receive. Figures[77]
produced by energywatch state that there are 228,000 households
with dynamic teleswitching meters in Scotland. Consumers with
these meters find it difficult to switch suppliers as most suppliers'
systems are not able to incorporate data from these meters. In
addition to this, research[78]
carried out by Ofgem shows that pre-payment meter customers are
less likely to switch suppliers than consumers who pay by other
methods and acknowledges that the competitive market has not worked
for these customers.
Fuel poor customers, particularly those who
have pre-payment meters or who are in debt, have not been able
to take full advantage of the benefits of competition and EAS
is pleased to note that Ofgem will monitor switching levels amongst
disadvantaged groups. The National Audit Office (NAO) Review stated
that there is a lack of easily accessible, trustworthy, relevant,
understandable and comparable information for customers wanting
to switch suppliers. Tim Burr, head of NAO said "Ofcom, Ofgem
and Postcom need to be vigilant, and be prepared to use their
powers when necessary, to ensure genuine competition is present
and that it is working to serve consumers".
RESPONSE TO
SPECIFIC QUESTIONS
FROM BERR COMMITTEE:
PROGRESS
IN REDUCING
FUEL POVERTY
AND THE
APPROPRIATE POLICY
INSTRUMENTS FOR
DOING SO
EAS is concerned that fuel poverty targets,
which had originally appeared to be realistic, will not be met,
mainly because of the unexpected rise in energy prices over recent
years. Ofgem has a key responsibility in relation to ensuring
that fuel prices are no higher then necessary. In addition to
this raising household income and improving the energy efficiency
of housing has an important role to play in the eradication of
fuel poverty. The Carbon Emissions Reduction Target, which comes
into effect in April 2008, will also be an important instrument
for the improvement of energy efficiency in housing.
The following graph shows that the rise in fuel
prices has pushed all pensioner households (2 adults of pensionable
age with no children) living in a standard 3 bedroom end terrace
house, and in receipt of Pension Credit, into fuel poverty irrespective
of payment method for fuel. Only those households paying by monthly
direct debit are not in fuel poverty, but only if their annual
fuel bill is less than £950.
SOCIAL TARIFFS:
EAS recognises that energy companies have introduced
various products in an effort to assist vulnerable, low income,
and fuel poor customers but it is often difficult to distinguish
some of these products as social tariffs, particularly if they
are more expensive than other products which are available from
the same supplier. EAS believes that social tariffs should be
lower than any other tariffs available from the company and targeted
specifically at low income and vulnerable customers. Some utilities
have set up trust funds but these vary enormously in eligibility
criteria and are poorly targeted at the fuel poor. EAS considers
that in the short term Ofgem should focus primarily on putting
pressure on energy suppliers to introduce products to assist vulnerable,
low income and fuel poor customers who may be struggling to pay
their energy bills.
EAS recommends that Ofgem continues to put pressure
on suppliers to develop social tariffs and other Corporate Social
Responsibility (CSR) initiatives until such time as fuel prices
have returned to 2002 levels. In addition to this Ofgem should
audit suppliers' CSR initiatives and social tariffs to ensure
that they are indeed effective.
WINTER FUEL
PAYMENTS:
EAS recommends that eligibility for the Winter
Fuel Payment should be extended to include other vulnerable groups
who may be in fuel poverty such as low income families with young
children or household members who are disabled or chronically
sick. There should also be a regional weighting for the Winter
Fuel Payment the further north households are located, to reflect
the longer heating season and therefore higher heating costs for
households in Scotland.
PRE-PAYMENT
METERS:
Pre-payment meter tariffs offered by power suppliers
should not be set at a higher rate than the other tariffs offered;
the fuel poor, vulnerable and those on low incomes should not
penalised for not having access to cheaper payment methods such
as Direct Debit.
TARGETTING FUEL
POOR HOUSEHOLDS:
EAS supports the "find and fix" approach
advocated by Ofgem for targeting help to fuel poor customers and
the partnership initiative which is bringing suppliers, voluntary
agencies and the Pension Service together.
Suppliers should be required to communicate
with their customers much more proactively and effectively than
they do at present. There are various services available which
have been designed to assist vulnerable customers, such as the
Priority Services Register and Fuel Direct, and these should be
publicised more widely. Many customers with pre-payment meters
are often unaware of the amount of debt they are repaying and
there is a need for improved communication between suppliers and
customers about their ability to repay fuel debts. Any debts that
have accrued as a result of delays by the supplier in recalibrating
pre-payment meters should be written off.
CONCLUSIONS:
EAS recommends that pre-payment meter tariffs
should not be set higher than other tariffs offered by the supplier,
that a minimum standard should be set for social tariffs, that
the eligibility for Winter Fuel Payments should be extended to
include other vulnerable groups and that fuel suppliers should
improve their efforts to target fuel poor customers.
EAS believes that improving energy efficiency
provides the most sustainable solution to fuel poverty while also
helping to meet Government's targets on reducing carbon; therefore
EAS recommends that Government should significantly increase investment
in energy efficiency measures. It is estimated that the recent
across-the-board energy price increases could bring the UK Treasury
an additional £175 million through VAT. This extra VAT revenue
should be used exclusively to tackle fuel poverty in the four
UK countries.
April 2008
75 Fuel Poverty in Scotland: Further Analysis of the
Scottish House Condition Survey 2002 Back
76
Fuel Poverty in Scotland: Further Analysis of the Scottish House
Condition Survey 2002 Back
77
"Working for Scottish Consumers" Factsheet-energywatch Back
78
Ofgem Factsheet 67: "Prepayment meter customers and Fuel
Poverty" 27 June 2007 Back
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