Select Committee on Business and Enterprise Written Evidence


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


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2008
Prepared 28 July 2008