Examination of Witnesses (Questions 540
- 559)
TUESDAY 15 MAY 2007
MR EDDIE
FOLLAN, MR
ADAM SCORER
AND MS
ELIZABETH GORE
Q540 Mr Davidson:
Are you saying you think that Ofgem is pretty much a waste of
space when it comes to dealing with the poorest consumers?
Mr Scorer: I think that Ofgem
has not been able to drive, either by incentive or by requirement,
energy companies to deliver fair pricing for low income consumers.
I think it has not done that. I do not think it has the mechanism
in its mind to do it which is partly why I think we need the White
Paper to recognise that government has to step in if others are
not delivering.
Q541 Mr Davidson:
The mechanism in its mind is a wonderful euphemism. I understand
that they do not have the will which is really what you are saying.
Mr Scorer: Yes.
Q542 Mr Davidson:
Do they, in your view, have the powers to do that? They could
deal with this if they wanted to, but they do not want to.
Mr Scorer: They gave up the fundamental
power they had which was the price control power they had in 2002.
They regarded the market was sufficiently mature for all consumers
to enjoy it. That has gone. That would be the usual way. It is
a price-setting mechanism. What they really have at the moment
is a range of incentivisations. There has been a little bit of
naming and shaming of Scottish Power amongst others lately. That
is the armoury they are using. I think it is insufficient. I would
agree with you that I do not think Ofgem has covered itself in
glory on this particular issue. What we are particularly concerned
about is an effective quick remedy for vulnerable consumers and
the quickest and surest way that we can see for that happening
is for government to require—
Q543 Mr Davidson:
The only reason you are saying that government has to step in
here is because Ofgem is not doing its job properly.
Mr Scorer: It is because Ofgem
has not found a way to deliver.
Q544 Mr Davidson:
We are seeing Ofgem later on.
Mr Follan: Following up on that,
to give you an example of what Adam is talking about—I will
try not to be too technical—basically people have got meters
in their house (250,000 of them in Scotland) that cannot be reset
and I am sure you have a lot in your constituency. This has been
running since 2005 and we are still in the situation where three
suppliers continue to back charge people pushing them into debt.
Q545 Mr Davidson:
I understand the issue. I understand that Ofgem disapproves of
that but are you saying to me that Ofgem has the powers to deal
with that but choose not to use them?
Mr Follan: Going back to what
Adam was saying, Ofgem have dealt with the issue through a process
of naming and shaming, but what they have not done is brought
forward the licence condition which says "Stop it".
As far as I understand it, Ofgem can do that.
Mr Scorer: Ofgem are going through
a process of reviewing the rules of the game that every supplier
has to follow and there is obviously the capacity there for them
to say you will not back charge, you will not levy a debt and
the concern—
Q546 Mr Davidson:
I want to be quite clear about this. There is a difference between
seeing when they review the rules they will put a new rule in
that says that. I am saying that they have got the powers to deal
with this now. Are you saying to me that they do not actually
have the powers to deal with back charging at the moment and all
they have therefore got to do is beg and grovel and name and shame?
Mr Scorer: The powers that they
have in this instance are probably around the licence. What does
the licence allow them to enforce? Has there been a breach of
a licence condition? Is there an issue where Ofgem can say: Look,
these are the rules. It is pretty clear you cannot do it. There
is no rule that says you cannot back charge so it would have to
use this licensing procedure to introduce it to itself and it
has not done so.
Ms Gore: If we had smarter meters
which could be recalibrated remotely then this problem would not
arise. Smarter meter technology is there and has been developed
over time. What we would like the regulator to do is to speed
up the process of which suppliers are installing smarter meters.
Q547 Mr Davidson:
Presumably you have put this to the regulator?
Mr Scorer: Yes.
Q548 Mr Davidson:
What have they said?
Mr Scorer: We put this quite forcefully
to the regulator and to the industry. The regulator's position
would be that if there is a business case, if the industry can
come up with a way in which it can deliver smarter metering through
a competitive structure, then it will do everything it can to
allow it to emerge. What we need though is something which is
a little more dynamic.
Q549 Mr Davidson:
"Allow it to emerge" is a euphemism as well, is it not?
If they feel like doing it, the regulator would be quite happy
if they did it. The regulator is not going to oblige them to do
it.
Mr Scorer: The regulator will
not oblige them to do it and it will not oblige them to use any
specific technology to bring it about.
Q550 Danny Alexander:
In the Energy Action Scotland submission you actually said that
Ofgem had called for the use of social tariffs and that they had
then had some research from the Centre for Sustainable Energy
who then said these social tariffs are not all they are cracked
up to be and therefore Ofgem has sort of sat on its hands since
that evidence. What is the position in relation to Ofgem and the
social tariffs?
Ms Gore: I think when the CSE
report came out which found that some of the social tariffs were
actually not as good a deal as some of the other tariffs that
they were offering, I think there was quite a bit of embarrassment
among the companies who had been identified.
Q551 Danny Alexander:
They were not social tariffs at all. They were dressing something
pretty shoddy up as a social tariff.
Ms Gore: They have either been
adapted or they have been recategorised.
Mr Scorer: First of all, I think
what Ofgem said more than a couple of years ago now was that there
is nothing preventing you from delivering a social tariff under
competition law, so you are not going to fall foul of competition
law and they will not jump on you, so it is more an allowance
rather than a bringing about. The currency of social tariff has
been debased by a number of the products that have been brought
about by companies. Some are more expensive than their direct
debit tariffs, they are poorly targeted and they are time-limited.
They are really, I think, window-dressing. That is not all by
any means. Look at some of the activities latterly of Scottish
Gas, of EDF Energy, of Scottish and Southern Energy—there
were serious attempts to develop one but across the marketplace
you have incoherence, you have confusion for consumers and for
people who advise consumers about where to go and you have not
seen anything that you could say is based on a set of sound principles
that mean these tariffs deliver what they ought to deliver which
is the cheapest tariff from that company for the most vulnerable
consumers.
Q552 Danny Alexander:
As I understand it, there are certain aspects in the legislation
which mean, for example, that energy companies—correct me
if I am wrong—are required to charge standing charges, for
example, whereas I gather that in some continental European countries
the social tariffs involve the first certain number of units being
free effectively and you only start paying for your usage beyond
that, which would be a rising price as opposed to the regime we
have in the UK where you start high and it falls away.
Mr Scorer: The rising tariff is
one example which is often regarded as being a solution, both
for the fuel poor and for some energy efficiency sustainable directives.
I think there is plenty of room in the marketplace.
Q553 Danny Alexander:
Are there legal barriers to prevent that in this country or is
that something that the regulator again could, if he wished, impose?
Mr Scorer: I do not think there
are any legal barriers. I will come back to you with a note on
that and have a look at it, but I do not think there are legal
barriers.
Q554 Danny Alexander:
I have a couple of other questions in relation to Energy Action
Scotland's submission. You said in that submission that it would
need £1.7bn to fuel poverty proof all homes in Scotland.
Was that simply in relation to energy efficiency improvements
and improvements to the houses themselves, or does that cover
the pricing points that we are discussing at the moment as well?
Ms Gore: What we meant by fuel
poverty proofing houses, and it comes back to the question you
asked earlier about meeting the 2016 target, I would not be quite
as gloomy about it. It is possible to meet the target by improving
the energy efficiency of homes and bringing in measures to maximise
people's incomes and to do the things that Adam has talked about
in terms of energy pricing. I would therefore say it is possible
to meet the target but it will take a lot of money to do that
and it will take the political will. But if fuel prices were going
to go up at all, and it is bad for the people who are in fuel
poverty obviously, this may be a wake-up call to us that we are
not too complacent about the successes that were achieved in the
first few years of the Scottish Parliament's plans to tackle fuel
poverty because what it has shown is that we have a long way still
to go. But we do have the solutions and the Central Heating programme
results have been very positive with very high numbers—76%
of people have been taken out of fuel poverty by getting income
maximisation, energy advice, insulation and an efficient heating
system. Coming back to your question, which I have now forgotten
. . .
Q555 Danny Alexander:
I think you have answered it but I do have a follow up.
Ms Gore: It was about the £1.7bn.
Q556 Danny Alexander:
Where did that come from?
Ms Gore: That is actually to fuel
poverty proof all homes in Scotland and, getting technical for
a moment, to raise all houses to an NHER standard of seven. NHER
is a means of rating the energy efficiency of dwellings from zero
to 10 where zero is the least energy efficient. We believe that
if you take houses to at least a seven then you are much less
likely to be affected by the variations in price rises and by
variations in incomes as things happen to your personal circumstances
or economic circumstances change throughout your lifetime.
Q557 Danny Alexander:
Perhaps one of you can confirm this. My understanding is that
one of the mechanisms that exists in order to achieve this objective—the
energy efficiency commitment—in the way that it currently
operates actually discriminates against Scotland because you both
made the point earlier about the nature of the housing stock in
Scotland that particularly in rural areas there are a lot of old,
stone houses and it is very costly to insulate them and to raise
the energy efficiency standards of them, but the way the energy
efficient commitment works is that the energy companies are expected
to improve the energy efficiency of the maximum number of houses,
so if you are, to pick an example at random, an energy supplier
who is supplying energy to both the Highlands and Islands of Scotland
and to the south of England, then it is to your advantage to meet
the targets that are set for you by the regulator to spend your
money in the south of England because you get more for you buck.
You can improve the energy efficiency of many more houses in the
south of England than you can in the north of Scotland and that
the way therefore that target is framed within the energy efficiency
commitment effectively—and I would be grateful to know if
this is the regulator's responsibility or the minister's—effectively
means that it is not in the energy companies' interests to insulate
houses in Scotland when they have got houses that are much cheaper
to improve in the south of England on their customer base.
Ms Gore: In principle, wherever
you are running the energy efficiency commitments scheme that
would apply because obviously you have economies of scale if you
are working in a high residential area and you can do whole streets
at a time, for example, but what I am unable to tell you is what
the expenditure on EEC[12]
is in Scotland. We have been particularly interested to know that
for the priority group of customers[13]
because that links into the Government's plans to eradicate fuel
poverty. That information is not available. Perhaps Ofgem might
be able to supply that to you. In terms of hard to treat homes,
we would like to see additional measures being added to both the
Energy Efficiency Commitment and to the Central Heating and Warm
Deal programmes run by the Scottish Executive because although
both programmes have been fine until now—you do need the
draught-proofing, the insulation, the pipe-lagging and measures
like that which are generally seen to be the easy hits, the "low-hanging
fruit" is the term that is often used. We obviously knew
that there would be easier savings in the earlier years and that
as time goes on it is going to get harder to make those energy
efficiency improvements. The Scottish Executive is currently running
a two-year pilot looking at adding micro-renewables to the Central
Heating Programme. That is not to test the technologies—we
know those work—but what we want to know is the impact on
fuel poverty of using those in particularly hard to treat or in
places off the gas grid, but also how the people living in the
homes react to having those and whether that has any effect on
the effectiveness of the technologies.
Q558 Mr Davidson:
One of the issues that has been mentioned for why there is fuel
poverty is that there are lots of poor people basically. You are
critical of the winter fuel payment because it does not reach
all of those who it needs to and also there is some that get it
that do not need it. Short of just simply giving more money to
poor people, is there a particular way in which fuel poverty ought
to be tackled without involving an enormous bureaucratic structure
which requires measuring the temperature of the area, involves
assessing the type of your house and all the rest of it? Is it
best simply to give a flat rate increase on benefits and hope
that that then deals with fuel poverty?
Mr Scorer: There are lots of ways
of doing it. The one group of people—I have mentioned it
before—which is those eligible for cold weather payments
is a group of people who have been identified as being physiologically
vulnerable to the cold. It is pretty clear that they are going
to have serious health consequences. It is an issue that a number
of us have been pursuing for some time, a whole range of charity
and voluntary organisations saying you need to do more for this
vulnerable group. I think it is extraordinary that we have not
yet seen the DWP or government say: Let's just see what we can
do for this group who we have identified as being susceptible
to the cold and to damp homes. I think it is remarkable that we
have not found more effective ways of providing financial support
to that group of people. Whether that is them being eligible for
the £200 of winter fuel payment or something else, there
are exchequer constraints, but I just come back to the point that
unless you do that, I do not think you have a proper strategy
for addressing fuel poverty.
Q559 Mr Davidson:
It is building on the cold weather payments is the road forward
that you would think is appropriate rather than increasing winter
fuel payments.
Ms Gore: On the subject of winter
fuel allowances, it is fine as it is because, as I said earlier,
a great number of older people are in fuel poverty or at risk
of fuel poverty, but what we would also like to see is this winter
fuel allowance extended to people who are severely disabled and,
as Adam outlined earlier, very often they have restricted mobility
if they are in their homes.
12 Energy Efficiency Commitment Back
13
Note by Witness: The Priority Group is a defined group
in the Energy Efficiency Commitment Back
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