Examination of Witnesses (Questions 600-615)
MR ALISTAIR
BUCHANAN AND
DR ANDREW
WRIGHT
17 JUNE 2008
Q600 Roger Berry: Why have you not
done this before?
Dr Wright: We are doing it now
and it is something of which we have become aware and are addressing.
We would expect proposals to be in place before the end of this
year. This is a matter that we have been looking at for nine months.
We are doing it by way of co-operation with suppliers rather than
relying necessarily upon the cumbersome licence approach and we
think it will be successful.
Q601 Roger Berry: You acknowledge
that at present there is no scheme to verify the claims made in
relation to green tariffs. For years all of us as consumers have
been offered deals by suppliers in relation to green tariffs.
Only now are you getting round to checking to see the extent of
the fraud in that market. Is that not a bit slow? A lot of us
have signed up for green tariffs in good faith and assumed that
what we were told was correct. You are now acknowledging that
that may not be the case.
Mr Buchanan: You are absolutely
right that in the past two to three years green tariffs have developed.
Eighteen months ago the NCC which becomes the new energywatch
in a few months' time produced a very good report which flagged
up concerns. The Energy Savings Trust was, I believe, the prime
movers. Either they were invited to do so or they themselves started
to develop green tariffs. You are absolutely right. We believed
that this had begun to become such a serious issue that we wanted
to bring our own work and brand to it and be involved in it. That
was why we became involved in the past year. My colleague is very
close to releasing what will be a substantial step up in comfort
for consumers. You are absolutely right to point it out. We are
onto it.
Dr Wright: Although it is a small
part of the market it is important that people do not make the
assumption that somehow they can mitigate their environmental
impact by signing up to a green tariff and they still keep pressure
on reduced energy use through energy efficiency measures at the
same time. Unfortunately, sometimes that is the message that gets
across at the moment.
Roger Berry: That is absolutely correct
but it is a different message. We can all take individual actions
to try to reduce our impact on the environment. Interestingly,
for years and years many people have signed up to green tariffs
in the believe that it is an additional contribution and only
now is the regulator getting round to looking into it and the
consumer watchdogs say that there is a huge amount of fraud taking
place. I suppose the polite response is that it is better late
than never.
Q602 Chairman: Mr Buchanan nods in
agreement, I think.
Mr Buchanan: No. We are working
with it and trying to take industry and energywatch with us as
well.
Q603 Mr Weir: National Energy Action
told us that consumers who were off the gas grid had an average
energy bill in the region of £1,700 per annum compared with
about £1,000 for those on the gas grid even with rising price.
Many propane/home oil prices are rising faster than domestic and
gas electricity prices. Is Ofgem content with the level of regulatory
oversight of the domestic heating oil and propane markets?
Mr Buchanan: This issue has been
raised with us. Within our remit we have sought to try to approach
the off-gas network from the angle of encouraging the networks
to be developed. I think we took some substantial steps with the
initiatives in our gas price review put through the industry at
the end of last year and early part of this year which will run
for the next five years. As to regulatory oversight, if they are
local gas networks there is an element of oversight by us. If
it is off the network I am not entirely sure where we would come
into the regulatory oversight.
Q604 Mr Weir: You say that you are
encouraging the development of networks, but many rural areas,
including my constituency and others, will never have a gas network;
it is too far away from the existing networks. It appears from
evidence we have heard that there is no regulator whatsoever in
either the home oil heating market or propane gas market. Given
that there is regulation in a number of parts of the energy market
and the importance of this particularly in rural and other areas,
it is right that there is no regulation? Should a regulator like
you or someone else take on this market?
Mr Buchanan: I wonder whether
you have brought this up within the framework of the Energy Bill
as well. That may be a framework suitable for that debate.
Q605 Mr Weir: It has been brought
up in several fora and nobody seems to be taking it on at the
moment. There does not appear to be any consumer interest or any
regulation of it at all.
Mr Buchanan: I should like to
go back and find out more and then have a bilateral discussion
either with you or the Chairman.
Q606 Chairman: This is a matter of
considerable concern. I receive letters from my constituents who
say that prices are rising significantly faster than for mainstream
gas and electricity customers. It is not your fault.
Mr Buchanan: But there is concern
about it and we should follow it up.
Chairman: The OFT says that it can do
a major inquiry but it is busy with all kinds of other things
and it does not have time for it.
Mr Wright: Another reason why regulation
is required is that prices have increased to such a level that
some people cannot afford the minimum delivery requirements of
the companies. It is now so expensive that people do not get deliveries;
the suppliers will not supply below a certain amount. That is
another problem.
Q607 Chairman: If this Committee
were to recommend that your remit should be expanded to include
this section of the energy market would you resist it?
Mr Buchanan: I should like to
go away and look at it in more detail before I give an answer.
Q608 Mr Clapham: Do you have any
idea how many customers use LPG?
Dr Wright: We know approximately
how many are off the gas grid; it is somewhat less than 20% of
all households. This is also an issue for the supply market probe.
We are looking specifically at whether the competition is as effective
for customers who are off the gas grid. A lot of the focus of
the competition is on dual fuel and often it is harder for door-to-door
salesmen to get to these customers because they are in rural areas.
These customers may well get some benefit through the CERT and
EEC programmes for energy efficiency. This just shows how complicated
the issue of fuel poverty is because that is another dimension
that feeds into it.
Mr Weir: The point is that these consumers
have just fallen off the radar of the regulator. There is no one
looking at decent tariffs for them as they do in gas and electricity.
In many ways they have been forgotten. To say that you will develop
the gas network is impractical in many areas of Scotland and other
areas.
Q609 Chairman: The problem is the
density of the population. The irony in Worcestershire is that
the big gas mains that take gas all round the place roar through
the county and people who live almost next door to them cannot
get access to piped gas for their own houses, and never will;
it is not feasible.
Mr Buchanan: Clearly, the range
of concern is substantial, so we shall definitely follow it up.
Q610 Roger Berry: You recently published
your fuel poverty action programme. I welcome the attention that
you have devoted to this issue. What proportion of those who are
currently living in fuel poverty will be taken out of poverty
as a result of your action programme, and over what period of
time?
Mr Buchanan: There is our programme
and what the DWP plans to do which in many ways is much more substantial.
As one would expect, they focus on trying to use data management
both to access those who are fuel poor and to get benefits to
them. The scale of the benefit will be the key. The ability to
do this by the winter and the scale of it are questions I would
be asking them, as I am sure you would. That will be the main
driver. For every 10% increase in price 400,000 people go into
the fuel poor league. This is a very big problem now, and we are
receiving price warnings from the companies. My answer is that
there are three questions aimed at government and DWP. What we
are trying to do is to enhance the quality. We have a programme
running with the Citizens Advice Bureau called the best advice
programme. I think it is working well. We are working with the
University of Bristol to ensure we get good research to identify
ward by ward across England where the worst areas of fuel poverty
might be. We are trying to do what we call our find and fix programme
by working with relevant bodies, but I think the real difference
will be felt by the scale of the DWP programme and what the Government
will do.
Q611 Roger Berry: I am sure you are
right. The much proclaimed £225 million of extra social assistance
over the next three years—the deal with the `Big 6' companies—is
an increase from £50 million to £150 million annually.
I do not say it is not worth a row of beans; it is money, but
the increase is from £50 million to £150 million. Clearly,
someone somewhere is treble-counting. As I understand what the
DWP has said, this is being targeted as extra money to help pensioners
in fuel poverty. The obvious question here is: what about the
three-quarters of a million children in fuel poverty? What about
disabled people who are not pensioners but are in fuel poverty?
Where do they fit into this?
Mr Buchanan: That is a very good
question. I should like to come back on the slicing and dicing
and the way it is going up. Thank you for the information.
Q612 Roger Berry: What does Ofgem
think of the Government's position on social tariffs?
Mr Buchanan: That is an interesting
question that is probably best directed to the Government. I believe
that the Government is trying to approach fuel poverty through
a three-pronged package. The first is the DWP-based package which
is linked to what they are trying to do on the Warm Front programme.
You will know that that was pulled back a little in terms of financing.
It is also focusing on the companies to step forward. We have
seen companies develop their plans possibly under additional pressure.
Scottish and Southern has now rolled out its energy-plus plan
from 20,000 to 100,000 potential customers. It must identify them
and get the benefits to them. Ofgem is concerned with information
facilitation and driving through the opportunities within the
market-place for the fuel poor. I think that is the Government's
three-pronged approach to it. If it wishes to take a step forward
and say that it wants to reregulate a form of tariff then that
is really a question you must ask Malcolm Wicks or John Hutton.
Q613 Roger Berry: You have come up
with some specific proposals. Perhaps the most celebrated one
is that some of the £9 billion windfall that UK energy companies
are set to receive from the allocation of carbon permits under
phase two of the EU emissions trading scheme should go towards
helping those in fuel poverty. How much of the £9 billion
should it be, and how do the various partners in this exercise
feel about your proposal?
Mr Buchanan: This was considerably
highlighted when we were invited to see the Chancellor at No.11
and give our views and provide ideas on fuel poverty as an issue
and what the Government could do. Our ideas included, amongst
other things, that we should get on with smart metering and have
a look at the various DWP data issues now being developed. We
also referred to one of the ideas that we flagged in April 2006
in an earlier representation to the Government, namely that this
pot of money was sitting there. The companies will argue that
the pot of money is there for them to be able to reinvest in renewables.
I think an interesting question to ask them is: have they invested
that money in new technology? It is worth looking at a number
of companies. One company that comes to mind is Drax. At the moment
the City forecasts that about 70% of its EBITDAR over the next
four years—£1.6 billion—will effectively come
through the EU ETS scheme. How much is it investing in the next
few years? On city forecasts it appears that they are investing
about £350 million, so there are some interesting issues
there. I pick just one company; I am not picking on it, but some
interesting questions can be raised. This is a matter for Government
because Ofgem is not a lobby group. As with smart meters, we raised
these issues with Government and urged them to look at it. It
is up to them.
Q614 Chairman: I want to reinforce
what Mr Berry said about people other than the elderly who are
in fuel poverty. This Committee has been banging on about it for
years and nothing seems to happen. As fuel prices rise to eye-watering
heights it is becoming a greater problem. I know I am lecturing
the wrong people here, but the Committee attaches importance to
the inclusion of other groups in fuel poverty measures. You have
a difficult task on your hands. I began with some questions which
expressed scepticism about your good intentions given that you
thought the market already worked perfectly. We know that fuel
prices will continue to increase. Look at the oil price. We know
that this is a continuing problem that will get worse and worse.
Companies are talking of further increases all the time and people
are hurting. Every one of us finds his fuel bill an intolerable
burden. Therefore, if you do not make a reference to the Competition
Commission at the end of this you will look rather weak, will
you not? It is the only thing that people think you can do.
Mr Buchanan: We did not make a
reference on the back of the 2004-05 probe when prices were very
high compared with what they had been previously. We had been
looking at prices of about 10p to 20p per therm and they went
to about 50p to 60p. There was great concern at the time. We came
out with a package of measures which the CC at that time did not
feel was necessary, but for you and any other consumer there was
a weighty tome of evidence to show why we had come to that conclusion.
I know that the board will approach September with an open mind
to see what the right course of action will be, but everything
will then be published and you will see whether or not we have
taken the right course of action. I imagine that we shall be hung
from the lamp posts if you say that in producing the information
our judgment is missing because our own information tells us to
go to the CC and we have not done it.
Q615 Chairman: As a well-educated
man you will be familiar with the rock and whirlpool of Scylla
and Charybdis. If the rock of Scylla is the expectation that you
can do something with that kind of reference failure to push the
nuclear button will in some sense ruin your reputation, but the
whirlpool of Charybdis means that if you do make such a reference
you will disrupt the investment plans of major city companies
at the crucial time to keep on the lights. You are damned if you
do and damned and you do not, are you not?
Mr Buchanan: It is a difficult
job.
Chairman: On that note we shall bring
this session to a conclusion. Thank you very much for your evidence.
You have promised us at least one matter in writing. If there
are other things that you want to give us as you characteristically
do we shall welcome them.
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