Examination of Witnesses (Questions 880-894)
MR ANDREW
DUFF, MR
VINCENT DE
RIVAZ AND
DR PAUL
GOLBY
24 JUNE 2008
Q880 Roger Berry: Given that you
cannot, for obvious reasons, know who amongst your customers are
fuel poor and, therefore, you have to respond to people, perhaps,
phoning up and saying: "Do I qualify for the social tariff?"
do you not think it might be better, as suggested by Help the
Aged and Age Concern, that the £50 million could be allocated
to the poorest pensioners, very simply, by a £50 voucher
to pensioners on Pension Credit over 70, for example?
Dr Golby: Let me respond to that.
Our main vehicle is part of a tariff which we call Stay Warm,
which we had already expanded three-fold before we agreed to the
additional funding with the Government. We focused that at people
we believe are the most seriously affected here (so people who
probably are spending up to 20% of their income on fuel rather
than the cut-off of 10%), and that is, predominantly, older people
on benefits and mentally or physically frail. We have a tariff
there which is quite deep and targeted and that, probably, costs
about £400 for each of those customers. So whilst the Age
Concern comment, I think, is useful, if we are really going to
tackle this problem we have to do more than £50.
Q881 Roger Berry: Possibly more than
£50 million extra this year. In some statements we have been
told it is £225 million over three years, which is classic
treble-counting—whether it is on the part of the Department
for Work or Pensions or yourselves I do not know, but £50
million extra this year. I take the point that there are indeed
others than pensioners who are suffering very seriously, and you
mentioned disabled people under 60, for example, and the three-quarters
of a million children who live in fuel-poor households. So I accept
the case that there is an important argument for giving them support
as well, but I am left with two questions. The first question
is: the Government said this money was to be used for the poorest
pensioners. So my first question is: is that true or false?
Dr Golby: That is certainly the
way we intend to spend it.
Q882 Roger Berry: So you are focusing
entirely on the poorest pensioners?
Dr Golby: We are focusing predominantly.
Q883 Roger Berry: Predominantly.
Dr Golby: Predominantly.
Q884 Roger Berry: I have to say,
I genuinely do not know how customers can make sense of this.
How do customers find out if they might be entitled to something
from this £50 million? You do not know who the fuel-poor
are. One of you relies, to some extent, on people phoning up and
saying: "I think I might qualify". You cannot have the
information to identify who are the poorest of your customers.
I do not know how you are working out who gets this money. Can
you help me on this?
Mr de Rivaz: Can I try to say
something, because I have been the last one to say something about
fuel poverty. My company has been the first one a few years ago
to implement a social tariff, which is a simple one, which is
a 15% discount off their energy bills. I am pleased to see that
others have been following in our footsteps.
Q885 Roger Berry: May I ask for whom?
Forgive me interrupting, but 15% off their bills sounds very good.
For whom?
Mr de Rivaz: We have been targeting,
through various channels with the help of social organisations,
people who have the responsibility in society to—
Q886 Roger Berry: Welfare organisations
like Age Concern, and so on, do you mean?
Mr de Rivaz: Yes, absolutely.
The combination of all these actions plus our own fuel poverty
propensity model to assess the likelihood of customers across
a customer base to be in fuel poverty has helped us to target.
I am not saying that we have reached all those who are in need
among our customers, by far, but we have made this first step,
which is, I think, an important one. The final remark I would
like to say is that there has been a summit a few weeks ago with
the Government, the energy industry—a lot of organisations—about
this fuel poverty issue on the back of the Government's decision
to increase the suppliers' contribution to it. I think we should
rely on this process, to look at all the options to define before
next winter what will be the practical ways to spend efficiently
this additional money. Beyond all that, there is always the burning
question in this country about the benefits of having a kind of
mandatory social tariff. I know that it is a point on which I
have a position which is different from many of the suppliers.
I do not think a mandatory social tariff will prevent competition
or would prevent innovation. It will be the basic requirement
for all; it does not prevent anyone going further to offer innovative
products in addition to that. This debate has been here for years
and years but fuel poverty has not decreased in this country.
So it may give everyone the right signal to address this issue
on a level playing field and discussed in the most open way, I
think it might be helpful.
Mr Duff: The approach to fuel
poverty, currently, was designed at the end of the 1990s in a
world where energy costs were relatively low and declining in
the UK, and I think was an entirely sensible approach to delivering
better lives to those most in need in the community. We are going
through an energy price shock globally the like of which we have
not seen since the 1970s. I think it is right to question whether
that model is any longer sufficient to support that particular
group of vulnerable people in our society, faced with the very,
very real pressures that all of us face going forward. I wonder
whether a fresh policy look at the whole approach is the right
answer, so that the necessary effects of these very high energy
prices that we are seeing will drive the right signals in behaviour
in the way people who can afford to change the way they live their
lives can do so while protecting those in community who are least
able to respond to the challenges that this presents. Far from
disagreeing with my colleague, I would support a fresh policy
look at this and consider whether the piecemeal approach is any
longer sufficient.
Q887 Roger Berry: So you think it
is worth looking at a different tariff?
Mr Duff: Yes, I think so.
Q888 Roger Berry: That is two out
of the six so far. I have never understood the argument that says
that having a mandatory social tariff destroys innovation and
competition, any more than a National Minimum Wage destroys innovation
and competition. Dr Golby, are you open-minded on this as well?
Let us try and get three out of six!
Dr Golby: I am open-minded in
the sense that, as I said at the beginning, we have had a 14-fold
increase in the oil price since this policy was put into place.
It is not surprising that it is not working, and we really need
to have a fundamental look at it. The Government periodically
asking us to put some more money into it, I think, is not the
right way forward. We need to stand back and have a real look.
However, this is difficult to do in a competitive market, and
that is what you politicians have set up here—a competitive
market for gas and electricity. If we are going to treat this
problem seriously this is a major redistribution of wealth, and
we ought to be open, honest and clear about it and get some very
clear direction from government, because government are the people
who actually have the information that can target this. Whatever
we do as an industry, and we want to do something because none
of us feel comfortable being in this position, they have the levers
to pull here; we find it more difficult to pull those levers.
Q889 Roger Berry: How major it will
be will, clearly, depend on the sums of money involved, but in
principle—as with the National Minimum Wage—this could
either have an effect or it could not have an effect, depending
on where you set the level. As with the National Minimum Wage,
you have the enormous advantages (a) that people know what the
policy is and (b) they know what it includes. So just as we know
what we include in the National Minimum Wage, in a social tariff
we would know what that would actually mean, and, thirdly, it
would be a level playing field for everybody. Given that, Dr Golby,
do you not think there is a powerful argument for making it clear
to consumers, and having a level playing field and transparency,
so that instead of lots of different social tariff schemes people
knew what the minimum requirement was? Does that not appeal to
you, to make progress from a situation you have very adequately
described as being confusing?
Dr Golby: Clarity certainly appeals
to me, particularly if we are going to tackle this on a long-term
sustainable basis. Yes, I can subscribe to that if that is the
direction that government wants to go. Can I make one further
point here? Let us not run away with the view that social tariffs
are the only thing we should be doing here. Yes, we must alleviate
this problem because it is just totally unacceptable, but the
real issue is the disgraceful energy inefficiency of most of the
housing stock in this country. So rather than subsidising people
to waste energy we ought to be solving that problem.
Roger Berry: I entirely agree. Indeed,
I echo every part of that sentence, but we are talking about social
tariffs because you have got them, you are all saying how good
they are, you have signed up for another £50 million, and
so forth, and therefore it is a public policy area that needs
clarification. Obviously we cannot, Chairman, but given that we
have now got three out of the six supporting the principle of
a mandatory social tariff, it is a shame we cannot get the other
three back on again.
Chairman: One was not against it last
time.
Roger Berry: Fine—four out of six!
This has to be a major recommendation in our report, I think,
Chairman. I will rest my questions there.
Chairman: I am very grateful. There is
just one factual question Mark Oaten wanted to ask.
Q890 Mr Oaten: Very finally, a good
indicator of what kind of a messy situation we are in at the moment
would be just how many of your customers are defaulting on their
bills. What kind of percentage increase have you seen in the last
year for people who just cannot pay?
Dr Golby: I will come back with
a written response. This is an intuitive response. I think we
have probably seen our bad debts double in the last 12 months.
Mr de Rivaz: I will give you more
precise answers. We are doing two things. One is recognising that
there is a current challenge due to this difficult context, but
we are trying to improve our bad debt achievements in the company,
so it is difficult for us to differentiate between what is the
result of our efforts to reduce bad debt and what is the consequence
of the context which increased the bad debt. I will give you more
details in written evidence.
Q891 Mr Oaten: So bad debt is up?
Mr de Rivaz: Well, in our company
I will not say bad debt is up globally because we are acting—
Q892 Mr Oaten: In the UK market,
are more people struggling now to pay their bills than they were
a year ago? Yes or no?
Mr de Rivaz: The answer is yes.
Q893 Mr Oaten: Fine. Next one.
Mr Duff: The answer is yes, and
the response in our case is to put in place some very, very targeted
debt relief measures for people who are struggling to pay their
bills and to encourage them to come and talk to us.
Q894 Mr Oaten: Has it doubled as
well for you?
Mr Duff: No, but I will have to
come back to you with a factual response to that question.
Mr de Rivaz: What is true is that
our EDF Energy Trust Fund, which has been given £7 million
of funding for customers who are under the huge impact of having
high debt, is highly successful, and there are more and more requests
from customers to use the possibilities of the fund we are funding.
Chairman: What all six of you have been
highly successful at is using this opportunity to promote your
own particular competitive advantage in the market. I am impressed
by that. Sadly, I have not had the opportunity to ask Dr Golby
whether I should take his fixed price tariff to lure me away from
you, Mr de Rivaz, having left Mr Duff a couple of years ago! We
might explore that later, afterwards. There are a million things
we would like more detail about but this has been a fascinating
session. We are grateful to you. I think you have demonstrated
a sensitiveness and awareness of the challenge, and we look forward
to seeing what you report. We have one more session with the European
Commission on Thursday. Thank you very much indeed.
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