Letter by RWE npower
Thank you for your letter of 11 January. In
response to the two questions that you raise:
1. npower increased its prices on 5 January
2008. The steps that we have taken to mitigate the impact on vulnerable
customers are:
(a) We have not increased our prices for
those on our First Step tariff. First Step is our cheapest tariff;
it is 22.5% cheaper (based on estimated consumption) than our
average price, across all payment methods, for an annual dual
fuel bill. The tariff forms part of our First Step programme,
under which advisers provide one-to-one account management for
customers who are struggling to pay for their energy usage. In
addition First Step advisers will assist with energy efficiency.
Under the programme certain customers who follow a payment plan
will become eligible to have any outstanding debt cleared through
the resources of the First Step Fund established by npower.
(b) In addition to the First Step programme,
a further 50,000 vulnerable customers will receive rebates this
winter totalling £80. These customers are also offered free
energy efficiency measures and, if taken up, will receive an extra
£20 in rebates. We direct the rebate towards customers who
are vulnerable and fuel poor, identifying recipients through our
vulnerable customer programme and through fuel poverty modelling
based on internal customer information.
(c) In 2000 npower established its Health
Through Warmth Scheme (HTW). The scheme benefits the vulnerable;
people living in cold or damp homes whose health is adversely
affected. These people are often hard to reach and HTW works with
key community workers who, when visiting people in their own homes,
can identify those who are most vulnerable and refer them to the
HTW team. HTW is not tenure specific, in other words clients do
not need to be or become an npower customer.
Once a referral is made to the HTW team, its
home advisers facilitate access to statutory national grant schemes
and other locally available funds. If clients are not eligible
funding is sought from charitable organisations on their behalf.
Financial support may also be offered from the npower HTW crisis
fund. HTW also facilitates the installation of energy efficiency
and heating measures such as insulation, energy efficient boilers
etc.
There have been some 36,000 referrals to the
HTW scheme, and practical help to the value of £30m has been
delivered to vulnerable households. The npower HTW crisis fund
has itself contributed £3m in circumstances where households
would otherwise have received no assistance.
HTW is completely independent of any statutory
obligations under the Government's EEC/CERT scheme, npower recently
agreed a further commitment of £4.5m for the continued operation
of HTW.
(d) Although I would stress that pre-payment
is not necessarily a proxy for vulnerability or fuel poverty,
we have also put the following measures in place:
(i) The impact of the increase will be reduced,
for customers with and electricity prepayment meter, by an average
of £10 per customer per annum (there are more than 475,000
electricity pre-payment meter customers) and an average of £4
per customer per annum for gas pre-payment customers (there are
280,000 gas pre-payment meter customers);
(ii) There will be no increase in prices
for some of our token meter customers (in total 135,000 customers)
until April 2008. In addition we are currently carrying out a
programme of debt write-off and accelerated replacement of token
meters. npower has to date replaced 67,000 token meters and existing
debt of more than £70 from price increases has been written
off.
(e) Macmillan Cancer Support has been our
chosen corporate charity since 2004; the company gives £
for £ matching for all fundraising, as well as supporting
a number of commercial initiatives (eg TV advertisements for the
World's Biggest Coffee Morning in support of Macmillan). The npower
First Steps Team is currently piloting a fuel management programme
with Macmillan Cancer Support aimed at helping people living with
cancer manage their energy bills.
(f) The npower Spreading Warmth Programme
is designed to specifically assist vulnerable customers (those
in receipt of means tested benefits) and brings together a number
of initiatives and products and services such as large print bills,
free gas safety checks, energy measurement devices and energy
efficiency advice. This programme forms part of our regulatory
obligations and specific elements include:
(i) The Warm Response Helpline, a free-phone
service with trained advisers who assist the customer in the light
of his/her situation. This line also takes calls from the Home
Heat Helpline.
(ii) An energy efficiency advice telephone
service based on close examination of the customer's energy bill
and consumption history to provide personalised and relevant advice.
(iii) A network of in-home advisers who specialise
in providing face-to-face advice in how a customer can heat their
home affordably. Integrated within this service is the provision
of real-time display devices to the customer so they can understand
their household's electricity consumption.
(g) npower operates a detailed 14 point
programme to seek to ensure that we would never knowingly disconnect
the electricity or gas supply of a vulnerable customer who was
unable to pay his or her bill.
(h) This winter we are working with all
of the major energy suppliers, EAGA (the UK's leading provider
of residential energy efficiency solutions) and BERR in mailing
250,000 members of the public who are in receipt of, or are eligible
for but are not claiming pension credit. In the letter to them
we are offering free insulation and central heating grants as
well as other services such as benefit entitlement checks, energy
efficiency advice and registration on our Warm Response Service.
(i) In 2007 under our Energy Efficiency Commitment
npower spent over £50 million helping consumers improve the
energy efficiency of their homes, over half (£25.5) of which
was spent helping a priority group of customers. From April we
will double our programme under the CERT scheme, the programme
being introduced to replace the Energy Efficient Commitment.
We provide the opportunity for all of our employees
to volunteer to help in the delivery of many of these programmes.
At present more than 10% of our employees are actively engaged
in our volunteering programme.
In summary therefore, npower has a wide number
of measures to protect vulnerable customers from price increases
and generally assist those most in need with energy costs. These
include: no increases for our First Step customers, debt write-offs
for such customers, the provision of rebates of up to £100
for 50,000 customers, the provision of home advisers and payments
through the crisis fund as part of the Health Through Warmth Programme,
mitigating the cost increase for pre-payment meter customers,
delaying the increase for many token pre-payment customers until
1st April and not recovering outstanding debt for some such customers,
the products and services of the Spreading Warmth Programme, our
14 point programme relating to disconnections and the offers for
those in receipt of, or eligible for pension credit. In addition
more than half of our 2007 expenditure under the Energy Efficiency
Commitment related to priority group customers.
2. Your second question asked about our increase
in prices and the underlying reasons. We increased our residential
prices by on average 12.7% for electricity and 17.2% for gas from
5th January 2008. Our preceding change in prices, and a price
reduction came into effect in April 2007 based on our expectation
at that time of forward costs. Almost immediately wholesale costs
rebounded and forward wholesale commodity costs for 2008 have
increased by 66% for electricity and 60% for gas.
Our retail business buys electricity and gas
on the wholesale market. Whilst this increase in wholesale costs
is the major reason for the price increase, there have also been
substantial cost increases in two other areas:
(i) The costs of the CERT scheme are double
those under the EEC scheme.
(ii) There have been substantial increases
in distribution costs, most particularly in gas where there has
been a major increase in transport costs. In electricity, although
not of the same order of magnitude, distribution and transmission
costs are increasing.
npower's retail profits in 2007 will be substantially
below those in 2006. The position was not sustainable into 2008
with the further level of cost increases in that year.
I hope that I have adequately responded to the
two questions that you raise in your letter. In conclusion the
huge level of commodity cost increases, the substantial increases
in non-commodity costs for energy transportation and distribution
costs and the doubling of the costs to meet CERT have resulted
in our price increase, but we have implemented the change in conjunction
with a wide programme of measures to protect vulnerable customers
from energy costs.
25 January 2008
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