Examination of Witnesses (Questions 520-533)
PROFESSOR JOHN
CHESSHIRE AND
MR JOHN
CLOUGH
5 JUNE 2008
Q520 Mr Bailey: From recollection
it was about 23% from the figures we had yesterday.
Professor Chesshire: That is not
in my head; I am sorry.
Q521 Chairman: On the question of
profits, it strikes me that there is an issue here in that making
a profit is one matter, but what you do with the profit is another
matter. If you are distributing it to your shareholders or if
you are seeing a large cash amount and not using it, then that
is one issue. If you are spending it on investment then of course
that is quite different. Do you have any assessment of how these
increased profits are being used?
Professor Chesshire: A significant
source of increased profits certainly for the generators is the
operation of the Emissions Trading Scheme and I am sure you have
done inquiries galore on this, Chairman. You will know that they
were gifted these certificates—they were not auctioned—and
as a result of that of the order of probably £550 million
a year of the profits the companies are making derive purely from
that policy design—you might call it error or learning experience—and
clearly there is pressure to move to auctioning of emissions and
that will happen in 2011 or later, so we have to be patient there.
Other elements have come because there has been a bit of a dip
in the level of investment by the companies. There have been indecisions
about investment on nuclear for reasons you will understand while
the policy framework was put in place. There has been hesitation
to move down the coal generation route. Will they have to have
carbon capture and storage ( CCS) or not? Will they have to be
CCS compliant or fully fitted or not? There is a large backlog
of investment decisions in the offshore wind area, in some of
the onshore wind areas and so on, so investment has not been moving
at quite the rate the companies initially anticipated when they
put in planning applications for some of these schemes. Again,
I do not want to an apologist but I do not think you can look
at the wider profit margins and say they are just getting fat.
I think there have been some structural reasons for it: one is
postponed investment and one is the windfall from the Emissions
Trading Scheme, but there are other reasons, I am sure, as well.
They will try and get away with what they can do and, let's face
it, the structure is now fairly rigid. There is not any new entry.
Chairman: Exactly, which is one of the
issues that we will soon be looking at.
Q522 Mr Weir: The recent Ofgem fuel
poverty summit—do you think that those range of measures
that came out of that will do enough to reverse the current trend
of fuel poverty?
Professor Chesshire: We have to
welcome Ofgem's initiative, having argued that Ofgem should take
a more serious part in this debate I think we cannot be critical
when they actually do. I suppose we would argue that it is kind
of a little late. The primary responsibility for fuel poverty
is mainstream government departments, not Ofgem. Ofgem has a facilitating
role particularly in its relation with the companies. There has
been a scrambling around, let's face it, to put something on the
table as the political concern with fuel poverty increased, let
us be honest. I am sure Sir John Mogg and colleagues sitting behind
me have been scrambling around for a smorgasbord to interest the
fuel poverty lobby and politicians. That may be unfair but it
is politically realistic in my long experience. Are the measures
enough? As I said earlier, they are tokenistic and some will take
some time before they are put in place. If you look at the time
line at the back of the action programme, who owns responsibility
for each measure—I rather like the way they have set this
out—the target date and the fact that there is quite a lot
of discussion to be held to put the flesh on the bones, so watch
this space, but it is not the solution to the dilemmas that confront
us today, but I welcome Ofgem's interest in the field.
Q523 Mr Weir: Given that there are
three government departments—BERR, DWP and Defra—involved
in this, do you think that that dissipates the way forward? Do
you think it would be better if it was under one department?
Professor Chesshire: I wish it
were that simple. The biggest problem we face is existing housing
stock and the fact that the energy efficiency of it is absolutely
lousy. If we are looking 15-20 years, or even longer further forward,
that is the primary challenge that we face. The poorest quality
housing is occupied by the fuel poor. CLG is of primary importance
that I would add to your list and we have talked about taxation
and VAT and so on and for obvious reasons I would bring in the
Treasury. A very fair point was made earlier when the Fuel Poverty
Strategy came out in November 2001, the Government said this is
a complex multidisciplinary cross-departmental problem and the
only way we are going to tackle this is an inter-department ministerial
group and a shadow group of officials. I agree absolutely. That
ministerial group has not met for a very long time and I think
the drive has gone out of this process.
Q524 Mr Weir: Given that CLG are
not involved in this, you are really saying that they are missing
the real target.
Professor Chesshire: They set
issues such as decent homes, for example, which is very important.
There are a lot of areas where CLG will be involved in the wider
fuel poverty programme. The primary responsibility for energy
efficiency has been with Defra, for pricing strategy and sponsorship
of the energy supply sector it has been with BERR and Ofgem's
assistance, and DWP has a lot of data on household incomes. What
we do not know is, and we were asked this question earlier on,
why can we not identify the fuel poor? In our annual report we
identify the fuel poor by separating by age, by thermal efficiency
of the properties. Our difficulty is identifying the fuel poor
by six digit postcodes. That is our problem. We could get our
bangs per buck much greater if we could identify down to that
level. That means some delicate data sharing about energy use
held by the energy suppliers, income levels held by DWP and there
are natural sensitivities there, particularly with date discs
going missing last year and so on, of which I do not need to remind
the Committee, but if we can crack that we could target resources
very much more efficiently on those most deserving and we could
lower the rising transaction and search of costs which are bedevilling
our attempts to tackle fuel poverty. If we are not careful more
and more of the money does not go on measures, it goes on trying
to find the fuel poor household. That is another reason for being
joined up.
Q525 Mr Weir : The proposed eaga
initiative coming out of this, will it make any difference given
that energywatch's own "Are you missing out?"
campaign only persuaded about half of those who could have saved
between £451-£600 to switch?
Mr Clough: I think the key here
is we will find out during that pilot. My own concern is that
the pilot needs to be larger and I am looking forward to energy
companies helping us scale up the pilot from the 400-500 that
we proposed—this is a size which is designed to ensure the
business processes work and it is a good experience for the customer—up
to something which is 3,000 or more where we can get some real
findings out of it and we can segment the datasets such that we
find out what the moving parts look like. I have a firm belief
that if anything can work, that can, given the experience that
we have on benefits entitlement checks and that is a very good
customer experience with very good confidence and take-up levels
that if we can then enlighten people as to the benefits of switching
then if we can open that door for them that would be very effective.
If I have a concern it is that we then pass them back to their
existing supplier, and I understand the sensitivities there, and
we are reliant upon the supplier then doing the right thing. From
my own point of view I will lose visibility on the customer experience
from then on. This is a first step. I would not say it is a solution
at all but it is a step in the right direction.
Q526 Chairman: You said that you
want to scale it up. I thought the commitment was to scale it
up to 3,000?
Mr Clough: We are in that process
now and that is what will be delivered.
Q527 Chairman: The Ofgem announcement
says that Defra, eaga and energy suppliers will run a pilot programme
and check about 3,000 vulnerable customers.
Mr Clough: We are absolutely confirming
that and are working with suppliers now to finalise the appropriate
business processes.
Q528 Chairman: It has been announced
as a policy decision. You are saying that it is actually not yet
agreed?
Mr Clough: We have started. The
final size of the pilot, once processes have been finalised will
be 3,000 plus.
Q529 Chairman: That is what we are
being told is already settled. One last question to get a measure
of the importance of this data sharing issue. When I spoke to
Npower recently, who are almost a constituency company, about
their doorstep selling techniques, they put huge store on data
sharing as one of the keys to unlocking any problems in fuel poverty.
You have implied that as well today, Professor Chesshire.
Professor Chesshire: I think it
is absolutely fundamental because the research costs are going
to keep rising, if we are not careful—and the bang per buck
falls. It is not just DWP, energy companies, intermediates that
Ofgem might identify; it occurs at local authority levels as well.
Information on benefit recipients held by local authorities cannot
be shared with housing officials; a whole lot of things. It is
a very clumsy area. We share data on cars but we do not share
data on housing.
Q530 Chairman: There is a Parliamentary
press announcement to be made shortly. DCLG are not here again
of course. It says DWP, BERR, Defra and suppliers on this issue.
Professor Chesshire: At the Ofgem
summit I thought the single most enthusiastic and constructive
minister was Mike O'Brien from DWP. He had heard this concern
and he was astonished at how much of a hurdle it was across the
waterfront, not just in this narrow area for local authority levels
and so on. He expressed a very strong personal commitment to try
and get this moving. I have no brief from him to say that; it
is just an observation that he was committed to make some progress.
Mr Clough: It is worth noting
the precedent that primary legislation has already been passed
for the digital switchover help scheme where DWP provide information.
We happen to deliver that programme for the BBC. It can only be
used for that sole purpose and that is a restriction but I understand
the reasons for that, but the precedent is already there that
we can, if the will is there, release that information.
Q531 Chairman: What we are told is
that the target date for this is that a Parliamentary and press
announcement will be made shortly. Have you any idea what "shortly"
means?
Professor Chesshire: It usually
means within the calendar year in my experience.
Q532 Chairman: That is my experience
too. We will press Ofgem on that, I am sure, in two weeks' time.
Professor Chesshire: That is probably
unkind.
Q533 Chairman: Your cynicism I think
is not misplaced. Summer extends to about November normally in
parliamentary terms. Unless my colleagues have any questions or
are there any other points you would like to make and have not
so far had an opportunity to make?
Professor Chesshire: An awful
lot of numbers have flown across the table this afternoon. If
you think we can assist you in any way at all, I will sharpen
some of the numbers because they are like ships passing in the
night in the fog.
Chairman: Professor Chesshire, you have
often been of assistance to this Committee and its predecessor
and we are very grateful for that offer. Thank you both very much
indeed.
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