Memorandum submitted by The Energy Retail
Association
INTRODUCTION
The ERA, formed in 2003, represents Scotland's
domestic electricity and gas suppliers in the domestic market
in Great Britain. All the main energy suppliers, operating in
the domestic market, in Great Britain are members of the association—British
Gas, EDF Energy, npower, Powergen, Scottish Power, and Scottish
and Southern Energy. Since its inception, the ERA has ultimately
focused on finding ways to continually improve customers' experiences
with their electricity and gas suppliers. This means that we lead
on issues such as:
— Tackling fuel poverty and protecting
vulnerable customers.
— Delivering energy efficiency schemes.
— Ensuring good sales practice.
— Developing hassle-free systems
for changing electricity or gas supplier.
— Developing industry standards for
customer billing.
— Preventing debt and disconnections.
The Energy Retail Association (ERA) welcomes
the opportunity to respond to Scottish Affairs Select Committee's
inquiry into poverty in Scotland.
KEY ISSUES
Social Tariffs
The ERA does not believe that the term social
tariff fully explains or describes the range of social support
initiatives and schemes suppliers provide for vulnerable customers.
The term is not and should not be seen as a panacea to the problems
of 3m+ people (600,000 in Scotland) in fuel poverty and, therefore,
should be open to flexibility and innovation in order to adapt
and target resources to specific problems faced by vulnerable
customers.
Furthermore, the ERA does not agree with the
premise of a universal social tariff and does not hold the view
that such a move would assist the competitive market. Fundamental
questions exist regarding the targeting of vulnerable customers
who would be eligible for such a social tariff; the criteria used;
and the role of Government benefits and tax credits.
Given the changing energy market—both
nationally and internationally—it is unlikely domestic energy
prices in Scotland will return to pre-2003 levels. In that context
the ERA believes that income maximisation must form the bedrock
of initiatives to eradicate fuel poverty. Although energy suppliers
do not support a universal social tariff they are willing to assist
the Government and other delivery agents develop practical, sustainable
and results-driven solutions to fuel poverty.
The ERA does not believe that social tariffs
would have any discernible effect on reducing fuel poverty without
an integrated strategy that addresses the three elements of fuel
poverty—low income, poor housing stock and energy costs.
FUEL POVERTY
The ERA welcomes the approach taken by the Scottish
Executive in tackling fuel poverty in Scotland and the cross-party
consensus which has been achieved. The ERA hope the good work
continues under the new administration. In particular, the ERA
notes the success of the Central Heating Programme which it considers
to be the flagship fuel poverty programme in Scotland—87%
of those who have received fuel poverty or energy efficiency measures
under the programme have been taken out of fuel poverty. The Warm
Deal programme has also delivered similar results.
The ERA believes that one of the key issues
that needs urgent attention with the fuel poverty debate is the
poor targeting of fuel poor households and the need for the Government
to direct funds—especially benefits—to those vulnerable
households which require them the most. We know from a recent
programme of benefits health checks that vulnerable customers
are under-claiming benefits of, on average, £1200 per year.
The Government has to make the process of applying for benefits
simpler, better target those who genuinely need help and put social
equality at the heart of its financial inclusion agenda.
One of the ERA's key proposals is the reform
of the Energy Efficiency Commitment (EEC) to provide separate
carbon saving and fuel poverty initiatives. The ERA estimates
that a total fund of £300m could be created specifically
for programmes in fuel poor households by reducing the amount
of high cost measures which currently exist within the EEC model. This
should be coupled with a review of the Winter Fuel Payment which
would be remodeled to target those most in need. These reforms
could reduce the numbers of households in fuel poverty from 2.5
million to 100,000 homes by 2010. In addition, suppliers would
provide energy audits, hardship funds, special tariffs and energy
audits as part of a suite of measures to complement the reforms.
The ERA believes the Government should support
suppliers in establishing a separate Fuel Poverty fund which will
enable all stakeholders to deliver integrated solutions that have
the biggest impact on improving fuel poor households.
The ERA agrees with the statement made in the
recent Fuel Poverty Advisory Group Fifth Report that the Government
should provide an assessment of the resources and policies needed
to meet the 2016 target of eradicating fuel poverty in all households
and should draw up a Fuel Poverty Business Plan for the initial
years.
In addition, the Government's increased VAT
receipts from the rises in energy prices over the last few years
should in whole, or in part, be used to fund additional programmes
to tackle fuel poverty.
ENERGY EFFICIENCY
As we have indicated above the ERA recommends
that the EEC model should be reformed. The ERA believes that EEC3
should become a carbon focused programme where its impact on climate
change can be focused, and thus, more significant. In addition,
the ERA is concerned that the Government has overestimated what
can be achieved at reasonable cost through EEC. In order to achieve
financial equity a Priority Group (PG) target of 25% will give
suppliers flexibility to offer additional support to fuel poor
households and a PG of under 25% would bring additional benefits
to the market.
In the short term the ERA recommends that the
Government should introduce additional incentive mechanisms (whether
within or separate from EEC) to support the roll-out of new technologies
(i.e. microgeneration or ground source heat pumps) which could
include multiple EEC credits in the early years to subsidise the
initial start-up expenditure.
The ERA recommends that the Government should,
in addition to the services already promoted by energy suppliers,
(notably the Home Heat Helpline) establish a central point of
contact for all schemes providing energy efficiency and fuel poverty
and that this contact point be promoted locally, regionally and
nationally.
SMART METERS
The ERA and its members is an advocate of smart
metering and has been developing a framework for the establishment
of smart metering in Great Britain for some time working with
key industry partners and other stakeholders. Within the next
ten years suppliers will roll-out smart meters to 25 million homes
in Great Britain for both gas and electricity, provided the Government
gives a clear mandate in the Energy Bill.
Suppliers will install 2-way communication systems
that will involve customer display units giving real time information
on energy use in the home. The nature of the display will be a
competitive market issue and will allow suppliers to continue
to differentiate themselves in the market.
In addition:
— Smart meters will enable suppliers
to introduce flexible tariffs that measure consumption over set
time periods.
— Automatic and actual meter reads
will bring an end to estimated bills.
— Smart meters will have the capability
for import and export, which will facilitate microgeneration technology.
— Suppliers will cater for both credit
and debit customers for electricity (in other words a customer
will be able to switch between credit and pre-payment) and dependent
upon the cost issues from manufacturers the same benefits could
apply to gas customers.
— For electricity customers suppliers
will be able to remotely disconnect and reinstate supply, which
will reduce the costs of debt recovery.
PRE-PAYMENT
METERS
All energy suppliers are currently pressing
ahead with replacement programmes with the objective of having
all token PPMs replaced with smarter technology (allowing for
tariffs to be adjusted remotely) within the next few years. These
new meters will deliver a number of practical benefits to both
customers and energy suppliers including the ability to reset
prices and also collect accurate meter readings remotely. Some
meters also enable suppliers to operate more family friendly policies
including the ability to prevent disconnection due to lack of
credit at particular times such as evenings and weekends.
The pace of replacement programmes will obviously
differ from one company to another. The regulator, Ofgem, has
said that they recognise that each energy suppliers' token PPM
portfolio is different, in terms of size, demographic and geographical
split as well as in metering arrangements they may have in place.
The numbers of meters being replaced is currently
being monitored by Ofgem. The returns submitted for January 2007
show:
— There was a 150,000 decrease in the
number of token PPMs accruing debt—falling to 256,000 from
409,000 in December 2006.
— A removal of around 90,000 (including
some February activity) token PPMs
— 86,000 recalibrations were carried
out in January 2007
— There has been action to write off
debts for customers.
Ofgem has proposed a new licence obligation
as part of the supply licence review this summer requiring licensees
to take all reasonable steps to ensure that the meter is reset
within a reasonable period of time after a price change. By adopting
a "reasonable steps" approach, Ofgem recognise that
the recalibration of an electricity token meter is dependent upon
successfully gaining access to a customer's property—without
the consumer's co-operation, this continues to hamper recalibration
programmes.
There has been some criticism aimed at energy
suppliers for their failure to recalibrate electricity token meters
in a timely manner. Ofgem records the estimated build up of under-recovery,
based on average consumption for an electricity token PPM that
had not been recalibrated for 12 months, to be between £25
and £73. Of all types of PPM customers only 20% of gas customers
and 13% of electricity customers are repaying a debt.
Current concerns regarding PPMs are currently
being addressed by the industry and monitored by the regulator
and a timeframe is in place for replacement programmes. The regulator
has undertaken to monitor the situation on a monthly basis and
energy suppliers have made individual commitments in regard to
their PPM stock.
The Home Heat Helpline
The Home Heat Helpline (0800 33 66 99) was launched
in October 2005 by the ERA to provide a dedicated central point
of contact for customers requiring help and advice on paying fuel
bills and energy efficiency issues
Fuel Poverty and the Home Heat Helpline in Scotland
Scotland faces a slightly different set of challenges
regarding fuel poverty to the rest of the UK. This is due to the
climatic situation in Scotland as well as the nature of its housing
stock—both structural as well as their locations. In light
of these considerations the ERA has ensured that the Home Heat
Helpline (HHH) has a dedicated PR, marketing and public affairs
strategy in Scotland. To date, we have secured positive coverage
in both the national and local media in Scotland for the HHH as
well as undertaking activities to maximise the awareness of the
service in order to drive as many calls to it as possible. In
addition, HHH has worked with various MSPs in order to raise the
profile of the helpline, both in the Scottish Parliament and in
their local constituencies.
Given the number of households in Scotland suffering
from fuel poverty the ERA believes it is critical to provide an
accessible and responsive service in order that those most in
need can receive the advice they need. A HHH guide which has been
distributed widely explains that by taking very simple steps households
can heat their home more efficiently and pay less for their fuel
bills.
For people for whom English is not their first
language, a qualified advisor is available to give advice and
information over the phone using an interpreter through the Language
Line facility.
What does the Helpline Offer?
The Helpline encourages vulnerable customers
to talk to their suppliers, either directly or through a third
party, and access benefits to which they are entitled. HHH advisers
can offer advice on grants such as winter fuel payments for older
people, as well as inclusion on Priority Service Registers (PSR's)
for the disabled, and tips and hints on saving energy. In addition,
advisers carry out benefit entitlement checks whilst the customer
is on the line to ensure they are receiving maximum income. Advisers
also give advice on how to stay healthy in cold weather and how
to conserve heat.
HHH advisers are also trained to take calls
from intermediaries calling on behalf of vulnerable people, such
as friends, family, carers, social workers or health visitors.
In essence, the HHH is a one stop shop for energy
advice.
BACKGROUND INFORMATION
The Home Heat Helpline is a free service for
all British citizens. It is funded by Britain's six major energy
suppliers, and staffed by experts (including former health professionals
and social workers) based in Glasgow. To date, in excess of 50,000
calls have been received by the HHH. The HHH can be contacted
on 0800 33 66 99.
Energy Retail Association
23 May 2007
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