Examination of Witnesses (Questions 220-239)
MS SARAH
HARRISON AND
MR CHARLES
HARGREAVES
10 DECEMBER 2008
Q220 Chairman: Useful as that line
of inquiry is, going back to the people we are talking about,
this inquiry takes place against the background of a rising trend
of people in fuel poverty. I am interested to know if there are
things which people can do and what are the barriers at the moment?
You said, first of all, they may be worried about making the right
decision. Secondly, you have said they may have to use switching
sites and you are looking to deal with that. That is almost getting
into the realms of the quite complicated, dealing with perhaps
some of the kind of lifestyles against which the fuel poor have
to exist, and particularly the elderly fuel poor some of whom
may not be internet enabled and may be just as worried about using
IT as people that worry about making decisions. What have you
done to look at the barriers to making change and accessing help
and to make recommendations to make life easier for those people?
Ms Harrison: Particularly on the
switching sites, I want to repeat the point which is that we think
there is a role for telephone switching as well as internet switching
and that is why we are keen that Consumer Focus picks that up
and looks at that in the context of the Code.
Q221 Chairman: Did you go and ask
people "You have got massive heating and lighting bills.
Did you know you could get this cheaper, yes or no? If the answer
is no, tell me why did you not know." It is very simple questions
like that which I am interested in. "If you decided you wanted
to change, what stopped you" or "What were the factors
that led you to live in a place that has not been properly insulated?
Why did you not know about these schemes? Have you ever heard
of X, Y and Z?" Has that been looked at?
Ms Harrison: In terms of a customer's
experience of making choice, in other words switching tariffs,
yes, we have. The example I gave is that one of the things people
have come back and told us is it is complicated but also there
is a fear of making the wrong decision. What we have not done
specific research on, and I am not sure if Defra or DECC may have
done, on whether customers have broad awareness of all the different
schemes that are available, for example Warm Front, CERT and so
on.
Mr Hargreaves: The Energy Saving
Trust might have carried out some work on DECC's behalf.
Q222 Chairman: I woke up yesterday
listening to this launch by Dame Tanni Grey-Thompson of her new
initiative aimed at effectively people who are struggling because
they have disabled people in the household to get a good deal
on their energy costs. The amount of money that was put by, I
presume by energy providers, to this was very substantial. It
made me think why has it taken somebody like her to run an initiative
aimed at a particular category of person to get information that
ought to be readily accessible. For her group of people read the
group of people we are looking at. I got worried. Here we are,
seven years into this programme about fuel poverty and yet the
fundamentals of what you do about it do not seem to get through
to the target audience.
Ms Harrison: That is a very fair
issue. From my understanding Dame Tanni Grey-Thompson and Richard
Wilson were launching the Home Heat help line. You may have heard
from your suppliers who were here earlier that that is a supplier-funded
initiative.
Q223 Chairman: The question is why,
when we have been at this group for so long, do we have to do
it? What has failed beforehand that leads you to this type of
initiative? I am getting the impression there is a lot of help
around but it is not getting through.
Ms Harrison: I do not think you
can underestimate that challenge. In my opening remarks I made
some points about the fact that one of the challenges here is
there are a number of schemes and from the customer's perspective
it is what are they and how are they valued and how do you get
access to them. From our perspective and one of the other things
we have done is required suppliers to make much clearer the information
they have about their own different schemes, their own social
tariffs, their own social programmes, to make that much clearer
in their own information but also to third sector agencies who
play a key role on the front line helping customers find the right
help. Certainly from our own media work and our own work we are
very regularly pushing the message and encouraging customers to
approach their suppliers to ask for what help they are entitled
to.
Q224 Lynne Jones: Under CERT there
has been a reduction in the proportion of the assistance that
must go to priority groups. Are you not troubled by that? Obviously
you administer the scheme so is there anything that could be done
about it and also making sure that the priority groups are those
that are fuel poor?
Ms Harrison: A quick comment and
perhaps I will ask Charles to add to that. I made the point earlier
that we think it is important that these schemes are proportionately
available also and targeted at households who have most difficulty
meeting their energy bills and the benefits accrue to them. What
has happened is that while the priority group percentage has reduced
actually the definition of the priority group itself has widened
quite substantially to all householders over 70.
Q225 Lynne Jones: That makes it worse.
Ms Harrison: As you quite rightly
say, that is not necessarily going to be the most carefully targeted
group in terms of the customers who are most in need of help.
Mr Hargreaves: From the administration
point of view, if we go back to the second phase of the Energy
Efficiency Commitment, throughout the course of that programme,
where the priority group was defined as low income consumers on
income related benefits and tax credits, the supply of reported
activity was 60/40 in favour of the non-priority group pretty
steadily throughout the three years of the programme. Obviously
as part of the consultation process the suppliers put in fairly
strong evidence to say that the priority group, as it were the
low income group, was becoming close to saturated in terms of
the numbers of cost-effective measures that could still be installed.
Defra, as it was at the time, undertook some analysis that actually
substantiated that fact saying when you are in the lower income
group there is only a finite number of cost effective measures
that can be installed in these properties and if we were able
to double the scale of the CERT programme and still require 50%
of the measures to go into those low income households it would
be very difficult, if not impossible, for suppliers to comply
with that obligation. They brought the priority group target down
to 40% and also increased the scope of the priority group to include
the over 70s. If I could give you the evidence we have of the
current CERT programme, as I mentioned earlier it was 60/40 in
favour of the non-priority priority group under EEC2. The evidence
we have from the first two quarters of the CERT programme is that
65% of all activity has been undertaken in the priority group
so there has been a massive switch, almost a reversing of the
trend.
Q226 Lynne Jones: Is that because
there is greater awareness and more people are coming forward?
Mr Hargreaves: I think it is because
the scope of the priority group has been expanded to target the
over 70s and the suppliers want to take advantage of that expansion
immediately so they do not allow the competitors to saturate the
market and prevent them from taking advantage in the future.
Q227 Lynne Jones: The energy companies
are set to have another windfall in terms of the allocation of
the EU ETS. Should there be some assessment of the benefits to
the energy companies and what proportion of that, or all of it,
ought to be spent on either energy, fuel poverty measures or other
social benefits such as energy efficiency overall?
Ms Harrison: We do not have a
view on the proportion but as a principle what we have consistently
said, as far back as 2006 in our response to the Energy Review,
is we do think that permits to pollute have a value and that value
really ought to be captured and the revenues from that we have
always taken the view the carbon credits should be fully auctioned.
We also propose that the revenues flowing from that could potentially
help fund either environment or fuel poverty programmes. That
is a policy option that we have put on the table for some time
and it is really up to government and others to decide whether
that is something to pursue.
Q228 Lynne Jones: You would be looking
at that in your market analysis in terms of the pressure that
you can put on the energy companies.
Ms Harrison: Coming back to my
point about wanting to look at putting more financial information
into the public arena, exactly that: it would expose more clearly
exactly how those windfalls are being gained.
Q229 David Lepper: Just a thought
about the questions that Lynne Jones and the Chairman were asking
about disseminating to the people who need to know it the information
and the recommendations that you have. Could you just say something
very briefly about the relationship between Ofgem and what I assume
now would be Consumer Focus and the role that was once played
by Energy Watch now absorbed into Consumer Focus? What is the
relationship between Ofgem and Consumer Focus now, if any?
Ms Harrison: There is a relationship
and a very good one. We are looking forward very much to working
with Consumer Focus particularly in this area. I told you about
things we do in terms of media campaigns and other initiatives
to get the message out that there is help available and simple
ways on how to access it. In some sense this is core Consumer
Focus territory. We are very keen to understand how Consumer Focus
is going to rise to that challenge and how more information can
be made readily available.
Q230 Mr Drew: You have not mentioned
one of the most vulnerable groups of individual households which
are those in very rural areas off the main gas pipeline with unpredictable
electric supplies. What account do you take of these rural individual
households and communities? Have you got a rural strategy? Do
you sign up to Defra's rural PSAs in this area that we should
give these people some consideration?
Ms Harrison: We have statutory
duties to rural customers as well as to customers on low incomes
and older customers. Perhaps I can give you a few examples of
what we are doing here. First of all, coming back to our energy
probe, one of the highlights was the identification, from our
point of view, of around about 4 million customers who are off
the gas grid who only take an electricity tariff for whom the
market is not working as well as it could because they are not
able to access, by virtue of that fact, some of the more competitive
dual fuel deals. Those 4 million customers are very much one of
the targets of the sorts of remedies that we will be deciding
on what is required next. I am pleased to see that some of the
companies have already acknowledged our findings by making announcements
over the last few days to cut prices to their electricity only
customers to bring that differential back into line. We see that
as a step in the right direction, but to repeat the comment I
made earlier I would not want to create the impression we think
that, in and of itself, is sufficient. It is for the Ofgem Authority
to decide what, if any, further action is required. The other
area where we look at customers off the gas grid is in relation
to setting the gas distribution price control which we did actually
for the first time last year. As part of that we have given the
gas distribution network businesses some specific incentives to
extend the gas network into fuel poor communities.
Q231 Mr Drew: Can I check that is
still part of Ofgem's official policy structure, that you are
extending the gas network?
Ms Harrison: Regulating the gas
networks is absolutely our core business. We have put some specific
measures or incentives in place to extend networks into fuel poor
communities.
Chairman: You are not waiting for the
gas connection.
Mr Drew: I have many constituents who
would love gas connection but unfortunately it is like waiting
for Godot.
Lynne Jones: They could just have air
source heat pumps.
Mr Drew: We will be looking at that.
Q232 David Taylor: How long have
you been with Ofgem?
Ms Harrison: I have been with
Ofgem approaching nine years.
Q233 David Taylor: Since day one.
Ms Harrison: Pretty much since
day one of Ofgem, yes.
Q234 David Taylor: You said at the
start, and I paraphrase slightly, that you were pretty happy that
you were promoting effective competition and that you were protecting
the interests of the consumers, did you not?
Ms Harrison: I said that was our
principal objective to protect consumers.
Q235 David Taylor: You thought you
were doing quite well in that regard.
Ms Harrison: Overall Ofgem has
delivered in that regard in terms of choice and fair deals.
Q236 David Taylor: Would you be disappointed
if you were to realise that a sizeable proportion of your consuming
population, certainly the population in this place, see Ofgem
in the top pocket of the energy suppliers?
Ms Harrison: I would and I do
not believe that is the case. I would point you back to the work
we have just completed.
Q237 David Taylor: You say it is
not the case but since oil peaked at $147 a barrel it has come
down to less than a quarter of that price, going south, whereas
the energy bills coming through my constituents' letter boxes
are still going north. They might think that the subtext of protecting
the interests of the consumer is just not happening. What on earth
is happening with Ofgem? I have sat here for an hour or so and
I am not especially wiser as to how you approach the role that
you have in this area or any other.
Ms Harrison: We have very much
in the sense of making sure the market is working and is providing
best value for customers. We have just pulled up all the roots
on aspects of the energy retail market and have found it wanting
in some respects which is why we are now looking to put in place
some measures to correct that.
Q238 David Taylor: To deliver more
satisfactorily in many people's eyes. Is it the powers you lack,
is it the will you lack or have you lost the plot on these matters?
Ms Harrison: Coming back to some
of the recommendations from our probe, there are some areas where
we are seeking additional powers. If I can give you one example,
in respect of the wholesale gas and electricity market we want
to have additional powers that tackle market abuse. There are
some real issues there that we are not necessarily capable of
dealing with in the current armoury that we have available.
Q239 David Taylor: My constituents
are not being supplied by the wholesale market but by the retail
market. Let us move on to energy efficiency and whether or not
Ofgem can actually make much of an impact in this area. Which
do you think has the greatest potential to make an impact on fuel
poverty, would it be your prime aim of promoting competition and
perhaps reducing prices or would it be energy efficiency? Which
has the greater potential in tackling fuel poverty?
Ms Harrison: They both have a
part to play.
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