Memorandum submitted by National Housing
Federation
SUMMARY OF
EVIDENCE
1. The Federation believes that Ofgem is
failing in its duty to help low income customers because it allows
energy suppliers to charge their poorest customers (pre-payment
meter customers) a premium for their energy.
The Government recently acknowledged that pre-payment
meter customers get an unfair deal and has threatened energy suppliers
with the introduction new legislation if they don't improve the
situation by winter 2008. The Government should not have had to
make this threat if Ofgem was fulfilling its duty to low income
customers.
2. We believe that Ofgem's current position
that switching is the solution to helping over a million fuel
poor pre-payment meter customers is flawed, as many customers
cannot switch suppliers for various reasons.
Ofgem should advocate the equalisation of pre-payment
meters tariffs to standard credit tariffs as the instrument to
help over one million customers in fuel poverty.
ABOUT THE
FEDERATION
The National Housing Federation represents 1300
independent, not-for-profit housing associations in England and
is the voice of affordable housing. Our members provide two million
affordable homes for five million people.
The mission of the National Housing Federation
is to support and promote the work that housing associations do
and campaign for better housing and neighbourhoods.
Our pre-payment meter campaign
Over the last year the Federation and housing
associations have been campaigning for energy suppliers to give
pre-payment meter customers a better deal for their gas and electricity.
On average pre-payment meter customers pay a
premium for their energy compared to other customers who pay for
their gas and electricity by standard credit and direct debit.
Some suppliers have equalised their gas or electricity pre-payment
meter tariffs to standard credit but we want all energy suppliers
to equalise their tariffs.
OUR EVIDENCE
Our evidence to the committee comes under the
following issue headings:
1. The effectiveness of regulatory oversight
of the energy market
2. Progress in reducing fuel poverty and
the appropriate policy instruments for doing so
The effectiveness of regulatory oversight of the
energy market
The Federation believes that Ofgem is failing
in its duty to help low income customers because it allows energy
suppliers to charge their poorest customers a premium for their
energy.
The Utilities Act 2000 gives Ofgem the principal
objective of protecting the interests of consumers and it places
duties on it in respect of a number of groups within society,
namely the disabled or chronically sick, pensioners, those on
low incomes and those living in rural areas.
Ofgem acknowledges that pre-payment meter customers
on average have lower incomes compared to customers who pay for
their energy by standard credit (customers who pay on receipt
of a quarterly bill) and direct debit.[295]
[NHF1]Yet it continues to allow the market to charge these low
income customers the most for their energy.
Everyday 1,000 new pre-payment meters are installed
and these meters come with a premium of up to £162 more per
year compared to standard credit. The differential between pre-payment
meters and direct debits can be as much as £200 and this
continues to grow.
CURRENT ENERGY PRICES[296]
| Tariff Type - Gas - Medium User
| | | |
| | | |
| |
| | | Standard
Tariff
| | | |
| | |
| Current | Current
| Current | Current | Current
| 1 April | Max | Min
| Average |
| SPower | EDF
| BGas | E.ON |
Npower | SSE | Bill
| Bill | Bill |
| Average direct debit | £604
| £633 | £588 | £603
| £610 | £584 | £633
| £584 | £604 |
Average standard
credit |
£679
|
£650 |
£656
|
£642 |
£631
|
£618 |
£679
|
£618 |
£646
|
| Average PPM | £643 | £660
| £712 | £676 | £673
| £662 | £712 | £643
| £671 |
NOTE: Source: energywatch price comparison factsheets
Based on an average Gas consumption of 20,500kWh per annum.
Prices include VAT.
Tariff Type - Electricity - Medium User
| | | |
| | | |
| |
| | | Standard
Tariff
| | | |
| | |
| Current | Current
| Current | Current | Current
| 1 April | Max | Min
| Average |
| SPower | EDF
| BGas | E.ON |
Npower | SSE | Bill
| Bill | Bill |
| Average direct debit | £367
| £377 | £394 | £396
| £404 | £382 | £404
| £367 | £387 |
| Average standard credit | £432
| £385 | £414 | £421
| £425 | £406 | £432
| £385 | £414 |
| Average PPM | £419 | £385
| £432 | £421 | £453
| £406 | £453 | £385
| £419 |
NOTE: Source: energywatch price comparison factsheets
Based on an average Electricity consumption of 3,300kWh per annum.
Prices inclusive of VAT.
| | | |
| | | |
| |
Over the last few years Ofgem has consistently fought against
equalisation of pre-payment meter tariffs to standard credit tariffs.
They have continually produced briefings and reports which have
made the case against this reduction in pre-payment meter tariffs.
Ofgem has argued that "if pre-payment were aligned to
standard credit tariffs a typical customer would pay an extra
£6 per year. Equalisation would therefore make the 3 million
DD [direct debit] and SC [standard credit] customers who are fuel
poor worse off".[297]
Ofgem is adamant that this £6 a year increase would
be catastrophic to those in fuel poverty and yet it allowed some
suppliers to make price increases of up 17% gas and 15% electricity
in early 2008. These increases have brought the average yearly
energy bill over £1,000.
Ofgem also declined to comment on the Government's decision
to introduce policies which add £80 yearly on to bills. This
increase will go toward environmental schemes such as Renewable
Obligation Certificates (ROC) and the European Union Greenhouse
Gas Emission Trading Scheme (EU ETS).
Energy suppliers recently received a £9 billion windfall
when they were given free allocations of EU ETS allowance. It
would cost energy suppliers less than 1% of the £9 billion
to equalise pre-payment meter tariffs to standard credit tariffs
this winter.
There has been some hope recently for pre-payment meter customers.
In his budget speech the Chancellor, Alistair Darling, acknowledged
the plight of pre-payment meter customers. He now wants a `fairer
deal' for these customers and has threatened energy suppliers
that it will introduce new legislation if they don't improve the
situation by winter.
The Government should not have had to make this threat to
energy suppliers for action if Ofgem was fulfilling its duty to
low income customers.
There is no pre-payment premium in Northern Ireland. The
market has shifted to benefit pre-payment customers. Their pre-payment
meter customers get 2.5% discount off the standard rate and can
buy top-ups over the telephone 24 hours a day.
RECOMMENDATIONS
We recommend the Committee:
— seeks clarity from the Government on what it would
count as a successful outcome to its discussions with energy suppliers
on reducing the price differential between pre-payment and standard
credit tariffs
— asks Ofgem why the Government has had to intervene
to get a "fairer deal" for pre-payment meter customers.
PROGRESS IN
REDUCING FUEL
POVERTY AND
THE APPROPRIATE
POLICY INSTRUMENTS
FOR DOING
SO
There are one million pre-payment meters customers in fuel
poverty. Ofgem's advice to those customers who pay the highest
prices for their energy has simply been to switch to a cheaper
energy supplier.
This advice is not helpful for some pre-payment meter customers
who cannot switch supplier or payment method for various reasons.
On top of this the National Audit Office has said that "problems
such as complex tariffs and a lack of information mean that some
consumers, particularly those classified as vulnerable, are still
unable to take full advantage of the competitive market."
The Federation believes that switching is part of the solution
but should not be seen as a panacea. We firmly believe that many
low income customers do not have the ability to switch.
Energywatch recently said that "The sad truth is that
millions of consumers are switching but their bills still rise.
For millions more consumers switching to a cheaper tariff is either
fraught with difficulty or just plain impossible. No-one can seriously
think that switching, by itself, provides the answer for Britain's
besieged energy consumers."
Currently the best deals for gas and electricity are online
and are not readily accessible to millions of low income consumers
who are in energy debt, without bank accounts or access to home
internet.
Ofgem has just announced that switching is at its highest
rate for the past five years but Energywatch believes that figures
may not be truly positive "[we] don't know what proportion
of those reported to have switched are multiple switchers or what
proportion have actually saved money". We question how many
are from low income back grounds.
RECOMMENDATION
Ofgem should advocate the equalisation of pre-payment meters
tariffs to standard credit tariffs as instrument to help one million
customers in fuel poverty.
April 2008
295
Ofgem, Domestic Retail Market Report-June 2007.. Back
296
Based on figures from Energywatch on 20 March 2008 Back
297
Ofgem, Domestic Retail Market Report-June 2007. Back
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