Memorandum submitted by Scottish and Southern
Energy
Scottish and Southern Energy (SSE) is grateful
to have this opportunity to submit evidence to your Committee's
Inquiry into Poverty in Scotland. The company is involved in the
generation, transmission, distribution and supply of electricity
and in the storage, distribution and supply of gas. It supplies
energy to customers throughout Scotland.
GOAL
As Energy Action Scotland (EAS) stated in its
evidence to the Inquiry, poverty is a "very complex, multifaceted
issue, of which fuel poverty is only one aspect". It is,
however, the aspect which is the subject of this evidence. EAS
has set a goal of eliminating fuel poverty and it is one which
SSE endorses. There is no reason why, in the 21st century, anyone
in Scotland should be forced (by whatever circumstances) to live
in a home which is not warm and dry.
COMPONENT PARTS
OF FUEL
POVERTY
Fuel poverty should be broken down into its
three component parts: income; fuel prices; and volume of fuel
required to keep the home warm and dry.
1. Income
The government is clearly best placed to deal
with the issue of income; energy suppliers are not in a position
to influence this.
2. Fuel prices
Wholesale energy markets, which are influenced
by national and international factors, largely determine fuel
prices—although it is possible for different energy suppliers
to adopt different pricing policies. That is why, during 2004-06,
customers of SSE paid on average around £320 less for their
gas and electricity than did customers of British Gas. This demonstrates
the competitive nature of the UK's energy supply industry.
The competitive nature of the market was confirmed
by the European Commission in March 2007 when it exempted the
UK's energy suppliers from onerous procurement regulation. Finland
is the only other country in the European Union to be acknowledged
as sufficiently competitive to warrant this exception. Before
that, in January 2007, Ofgem confirmed that over four million
customers in the UK switched their energy supplier during 2006
and stated: "This is clear evidence that Britain has the
most competitive energy market in the world and that customers
are taking full advantage of this."
At the same time, it should not be perceived
that energy suppliers adopt a "one size fits all" approach
to pricing; and it should not be perceived that this is an area
in which suppliers have no obligations. In addition to ensuring
that competition works for the benefit of all customers, Ofgem
monitors suppliers' compliance with social obligations such as
providing for the needs of a variety of customer groups.
In other words, suppliers seek to support their
competitive position and corporate reputation and fulfil their
social obligations with products and services designed to help
customers whose circumstances make it difficult for them to meet
their energy bills. In SSE's case, these include:
— providing "tailor-made"
payment arrangements for customers who may be having difficulties
in paying for the electricity and gas they use (over 200,000 SSE
customers take advantage of such arrangements);
— offering an "energyplus care"
tariff and package of services for the most vulnerable customers,
enabling an eligible family living in a three-bedroom house to
cut their total energy bill by around 30%;
— providing and promoting an energy
efficiency advice line to offer high quality advice, with specialist
staff able to do home visits;
— abolishing the extra charge levied
on all of electricity pay-as-you-go (or pre-payment) meters;
— enabling debt avoidance through no
"back-charging" for the period between a price rise
being implemented and the pre-payment meter being adjusted to
reflect the increase; and
— supporting the Home Heat Helpline,
a free phone number offering practical energy advice for vulnerable
people (many of whom are unaware of the extent of the help that
is available to them).
These issues are all significant. For example,
in February 2007, Jackie Baillie MSP, convener of a cross-party
Scottish Parliament group on debt, described the "practice
of back-charging people for their pre-payment meters" as
"iniquitous", and noted it is one that SSE had ended.
The approaches that suppliers adopt clearly
vary, but this demonstrates the effectiveness of a competitive
market in practice in spurring suppliers into action. If suppliers'
approach to responsible practice falls short, they will ultimately
lose customers.
3. Volume of fuel
It is in the issue of the volume of fuel required
to keep the home warm and dry that there is scope for the government
and energy suppliers to work together to deliver measures designed
to provide a warm, dry home. The majority of households in fuel
poverty occupy homes with an energy efficiency rating which is
below average. By focusing fuel poverty policy on homes with the
lowest ratings, there would be the correct focus on the homes
most in need of improvement and on people at high risk of fuel
poverty. The first target should be to bring homes with a poor
rating up to the national average. The target can then be adapted
and upgraded as the least efficient homes are dealt with.
To achieve this simple goal, there needs to
be a single government-sponsored scheme for tackling fuel poverty
in the private sector (by integrating the central heating programme
in Scotland and Warm Deal and the "social" aspects of
the Energy Efficiency Commitment (EEC)—that part which is
currently assigned to households in priority groups). This would
be a better use of existing resources, and to maximise the synergies,
should be supervised by a single, bespoke agency, working with
all energy suppliers. This would give a single point of contact
and a more comprehensive range of measures, which should—in
turn—be easier to publicise. Incentivising suppliers to
become involved in the delivery to a greater extent would give
the new scheme greatly increased reach compared with the existing
models.
OTHER OPTIONS
New technology has a part to play in addressing
fuel poverty. So-called "smart' meters give customers information
about the energy which they are using, thus giving them more effective
control over their energy consumption. Awareness of energy consumption
is clearly a higher priority to customers who may be fuel poor.
SSE believes that there may be scope to support
the fuel vulnerable by providing them with a combination of energy
efficiency information and aids to enable them to better manage
their energy usage. This could be done, for example, through the
installation of prepayment electric smart meters with CDUs (Control
and Display Units). This could be complemented by the establishment
of a local infrastructure to support a tokenless pre-payment service,
under which customers can make payments remotely, that has been
successful in other countries.
Such a combination of much greater information
and a better, more flexible customer service could play a meaningful
role in making people better able to manage their fuel consumption
and, thus, their exposure to fuel poverty. Concepts such as this
are being trialled in a programme sponsored by Ofgem and UK government
departments.
In addition, for hard-to-treat homes, micro
generation technologies may offer a solution over the long term.
SSE is engaged with the charity National Energy Action to examine
how micro generation technologies such as air source heat pumps
and solar panels could contribute to alleviating fuel poverty
in hard-to-heat rural properties. This is an example of the importance
of suppliers engaging with key stakeholders in this area.
SUMMARY
In summary, SSE believes that the competitive
energy market in the UK clearly the environment in which the lowest
possible prices for customers will be delivered. It allows suppliers
to adopt a variety of approaches to assisting vulnerable customers.
Clearly, there is scope for reform of the delivery of schemes
to address fuel poverty. At the same time, new technology may
contribute to the alleviation of fuel poverty.
If you or any members of the Committee would
like to see the delivery of customer services in the energy supply
market, I would like to extend an invitation to you and them to
visit our company operations in either Portsmouth, Perth or Cardiff.
We would be very happy to welcome members as individuals or as
a group. I would also be happy to supplement this evidence with
more detail on any specific points if that would be helpful.
In the meantime, I hope these observations are
helpful.
Ian Marchant
Chief Executive
8 May 2007
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