Examination of Witnesses (Questions 240-259)
MS SARAH
HARRISON AND
MR CHARLES
HARGREAVES
10 DECEMBER 2008
Q240 David Taylor: I am asking you
to choose.
Ms Harrison: I do not think you
can necessarily choose. Energy efficiency is crucial and I would
certainly put a lot of weight by that for the simple reason that
it is through insulating and making our households more efficient
that we are going to have a more enduring solution to fuel poverty.
Equally I would say that in relation to income maximisation we
would say put more weight in that area but that is not to say
the attention should be diverted from making sure that energy
prices remain as competitive as they can be.
Q241 David Taylor: Ofgem consumes
a substantial amount of public resources each year. Presumably
amongst the things you have been able to purchase would be a fairly
complex and sophisticated model of the UK households, the energy
they consume and other details that you might have available.
Have you done any work at all on whether or not the focusing on
energy efficiency as opposed to a reduction of prices will reduce
the number of households in fuel poverty by X per cent or at what
point shifting the focus on to the reduction of retail prices
would start to reduce the numbers in fuel poverty by a greater
amount? Do you see the point I am making? Surely you must do some
modelling of that kind. I am sure you do not rely on the E.Ons
and the nPowers and the Centricas of this world to provide all
of your data, do you?
Ms Harrison: No, we look at the
government's own Fuel Poverty Advisory Group's work and the government's
own response to that where overall, up until recently, one of
the most significant contributions to tackling fuel poverty has
actually been made through increased incomes. Certainly in the
earlier period of the life of the target it was through reduced
energy prices, which has been reversed. We ourselves have not
done any specific analysis in that area to take that forward.
Mr Hargreaves: It would be fair
to say that other agencies that are working for government have
looked at the area. There is the Building Research Establishment,
which has a very complex model of how energy is used within the
home, who do the appropriate analysis of energy being consumed
and see whether you are in a solid wall house or a cavity wall
house.
Q242 David Taylor: I would be astonished
if, as the regulator for the gas and electricity market and with
the objectives that have been set for you, you had not built or
borrowed or had access to this sort of model. It does not appear
to me that you have the data that you need to either judge whether
or not what you are doing is successful or efficient or for the
outside person to have a performance indicator on the role and
performance of Ofgem. To me it seems rather unsatisfactory. It
seems like an organisation crying out for radical change. Do you
agree on that?
Ms Harrison: Is that a statement
or a question? I would come back to some of the findings that
we have most recently identified and the Authority will have to
judge the actions that now need to be taken not just in terms
of prices and unfair pricing but also in terms of what more can
be done to make customers' experience of the energy market better
and easier. There is potentially a real shift there that can be
achieved by making it much easier for consumers to make choices
in this energy market and we are very committed to pursue that.
David Taylor: If you align your activities
more closely with consumers, particularly those in the lower income
category, you would be doing a better job.
Q243 Chairman: One of the things
which has been discussed is the potential role of smart metering
in terms of helping people to both monitor and ultimately reduce
their energy consumption. My first question, albeit we are at
an early stage in the evaluation of this technology, amongst specifically
those people who are fuel poor, both old and young, is there any
behavioural evidence that convinces us that smart meters really
do make a difference?
Ms Harrison: I am not aware of
any specific evidence at this stage. Perhaps I could draw to the
Committee's attention the trial that Ofgem is running on behalf
of government that will be completed in 2010 which is looking
at smart metering, the impact of better billing information, and
the impact of real-time display devices and how that has changed
and is influencing behaviours. Some of the aspects of that trial
are also being run in different household profiles. It is very
early days in terms of any feedback from that trial but we did
publish a report in June. Certainly some of the experience was
really coming back in relation to impact of better billing and
real-time display devices and it was fair to say it was mixed.
On real-time display devices there was some evidence that some
of the measures had not been installed by householders or if they
ran out of their batteries they were not then being re-powered
but, having said that, those householders that were taking advantage
of the real-time display devices from that trial feedback seemed
to be responding well to that. This is an important area for us
to look at and to make sure that we gather the information from
this trial and make sure it does inform the thinking about smart
metering going forward.
Q244 Chairman: When we have looked
at it before part of the advantage of smart metering is its relationship
to different types of tariff that might be available. If the supply
side has not provided the customer with a series of easy to understand
options about their tariff then you cannot say that smart metering
has the potential to help the fuel poor, can you?
Ms Harrison: On smart metering,
perhaps one comment. In our own analysis of smart metering done
two or three years ago, certainly on a cost benefit basis, we
saw there being much more potential for customer benefits from
the smarter end of the technology spectrum. The other point I
referred to is the work that I mentioned earlier where we are
now looking at incentives on suppliers in relation to energy efficiency
and tariffs and that clearly has a relationship to smart metering.
Q245 Chairman: Are there other European
countries which have smart meters?
Ms Harrison: Yes.
Q246 Chairman: Has anybody done any
work in any of those to see if they have measurable behavioural
effects that might be of benefit to the fuel poor?
Mr Hargreaves: In the case of
Italy they introduced smart meters there for other reasons than
energy efficiency purposes.
Q247 Chairman: The answer is no.
Mr Hargreaves: No, not that I
am aware of.
Q248 Chairman: Not that I expect
you to monitor everything. A lot of people get hung up on the
technology and the information but like all information it is
what to do with it. It goes back to what you were saying earlier
on. You want the electricity companies to be more transparent,
fine. You can have a huge wadge of information but it seems to
me from the practical customer point of view you need something
that says I can find ways to reduce my energy consumption, how
can I also reduce my expenditure. I am using less but can I buy
it better? We have not got a clear answer on the "can I buy
it better" mechanism and the jury seems to be out on whether
smart meters really are the silver bullet to this problem. That
is the message I am getting. Would that be a fair assessment?
Ms Harrison: We are very supportive
of smart metering and I entirely accept that.
Q249 Chairman: Even if somebody gave
the green light to smart meters tomorrow it would take a very,
very long time indeed before everybody had one. Within the framework
between now and 2016 by definition smart meters are not going
to solve the problem of fuel poverty so we have to go back and
look at what the kit bag is now.
Ms Harrison: I certainly would
not disagree with that. There are more intermediate steps that
could be taken, and I will come back to the point about billing.
One of the things we are looking at is whether there is a role
for an annual statement which gives consumption information, whether
there is scope for more clarity on the bill about the amount of
energy that you are using.
Q250 Chairman: It would be nice if
all the utility suppliers actually did provide that basis. When
we did our last inquiry into this area some said they would do
it. The one I have in London produces a little bar chart which
is terribly encouraging but the one I have in the North West does
not produce any information at all. It would be nice if you could
insist on a bit of consistency. You have been saying to us we
should have better information on billing in front of this Committee
for the last two years yet we have not got it universally. That
is one thing where you might put your foot down and tell them
to get on with it and provide more information to consumers about
not only the billing situation but their options. I do not know
if you read the reverse of your electricity and gas bill; it is
a mine field. It is incomprehensible unless you sit down with
a calculator and try to work it all out. How anybody under the
kind of stresses and strains of people who do live difficult lives,
because they are worrying about jobs, funding and everything else,
cope with this complexity I do not know.
Ms Harrison: I think that is right
and that is why we need simpler information on the amount you
use and what your tariff is.
Q251 Chairman: We have been at it
for two years. You are putting it in the most modest and polite
terms that is what we need but my question is why do we not have
it now, which might explain Mr Taylor's frustration in our probing
Ofgem about what it is doing. You must have come to the same conclusion
some time ago that we could do with improvements in this area
but we are still waiting for them to arrive. I suppose they will
be like buses and we will end up with bills with too much information
all at once but some action would be better than none. Let us
move on to the post-2011 obligation in terms of suppliers. What
do you think that is going to look like when you have to discuss
with the supply side what their obligations are going to be post-2011
and what areas would you think ought to be included if consumers
are to benefit from any changes therein.
Ms Harrison: One of the fundamental
questions is whether the supplier obligation continues to have,
as part of it, a requirement to target measures at priority groups.
There has been some debate, and I heard it earlier this afternoon,
on separating out the energy efficiency objectives from fuel poverty
objectives. Our concern with that is given that these are measures
that are having a bearing on household energy bills and costs
it is important that some of that benefit is felt proportionately
by those for whom these costs are more difficult to bear. That
is a fundamental principle point I would make.
Mr Hargreaves: That is right.
It has already been discussed whether the costs should or should
not be picked up. I think the assumption should be that the costs
are being picked up by all consumers. If there is a separation
between the programmes between those targeted at fuel poverty
and those that are not in fuel poverty then you could expect there
to be a window of very low income consumers that would get everything
out of the programme and those that sit just above the fuel poverty
definition, de facto spending say 9% of their income on
measures, would not receive anything from the programme because
the suppliers, on one hand, would be looking to get contributions
from those consumers that could afford to pay and would be targeting
measures because of their obligation on those that are in fuel
poverty. Under the current programme, where you have this 40%
targeting of the priority group, it is slightly contrary to what
you heard previously. It is an equity-based approach, namely ensuring
the companies target a fair chunk of their activity on those consumers
on low income benefits and tax credits which ensures that the
low income consumers do get their fair share of the benefit of
the programme.
Q252 Chairman: It sounds to me as
if you have to have a sharper focus on who gets what in the post-2011
regime bearing in mind that meeting the 80% climate change figure
is, according to the report that has just come out, going to actually
increase the number of people in fuel poverty all the way through
to 2022. It is not a problem that is going to go away, is it?
Ms Harrison: In the face of those
carbon targets, no. We have seen the Climate Change Committee's
own analysis of the impact on fuel poverty and therefore the need
to think about things like the role of rising block tariffs and
the role of other tariff approaches to improving energy efficiency.
Q253 Chairman: Mr Drew has touched
on the subject of those people who are not connected to mains
gas, and an equally difficult and nonetheless numerically significant
number of people are those who live in older-type houses with
solid walls which are not easily insulated. They seem to be a
very difficult target to get out of fuel poverty. What is the
Ofgem formula to deal with that?
Ms Harrison: It is important to
continue to explore all the measures that can be employed in the
household to make it as energy efficient as possible but when
that has been exhausted then there comes a point at which it becomes
more inefficient to carry on down that road and therefore it may
be appropriate at that point to look at income-related measures
or further support through fuel subsidies.
Q254 Chairman: That is a lovely statement
but how would you actually formulate a policy approach to translate
that into reality? When we have looked at this subject, this particular
target, the hard to insulate house, we have known about it for
a long time and we have known that people on low incomes live
in them for a long time and the problem remains. How do we actually
get at the unmet need? There are clearly people in fuel poverty
who live in such properties who have not yet been affected by
any of the programmes we have been talking about.
Mr Hargreaves: You are right that
the message has been going around for a long time and that was
picked up by Defra in its discussions in relation to how the CERT
programme should be developed. Under the CERT programme a small
chunk of the programme can be met in the priority group flexibility
mechanism, a mechanism that allows suppliers to be heavily incentivised
to target measures on consumers off the gas grid with ground source
heat pumps and those consumers anywhere in a solid wall home,
that are on a low income, with solid wall insulation. It is at
the moment a very small part of the programme. The point is that
we will have an opportunity to learn from that part of the programme
over the next three years and then feed that experience into the
development of the programme post-2011.
Q255 Chairman: Is the key still making
certain that the energy companies know who the target audience
is if the target audience do not tell them? I am not certain how
you connect it up?
Mr Hargreaves: We can safely say
those consumers who are in a solid wall home that live on income-related
benefits are going to be the group that are highly likely to be
in fuel poverty. That is exactly the group that is targeted in
this priority group flexibility mechanism.
Q256 Chairman: How would they know
they were in it?
Mr Hargreaves: How would the consumer
know? I am afraid that is for the supplier to market the programme.
Q257 Chairman: It is a circular argument,
that unless the suppliers really go for it they are not going
to get any kind of response. It comes back to the point that Centrica
were making as to whether you have to have some active management
to go out and knock on doors and seek people who are in need of
help.
Ms Harrison: The other thing it
comes back to is the value of community-based approaches. If you
look at initiatives like the Warm Zone scheme, there have been
some good partnerships between suppliers using all the information
they have available but also being partnered by local authorities
and by other third sector agencies so there is a collective effort
to identify customers who are not relying only on householders
following up their interests.
Q258 Mr Drew: You are right. The
biggest problem in my area is the social stigma that older people
actually feel if they are seen to be actually seeking help. That
is the biggest barrier to overcome for people who are literally
freezing to death in their homes. That has to be why community-based
schemes are important. Can I throw in one thing I am not clear
on? Are you pressing the government on the issue of social tariffs
for some clarity on where the government is and whether there
is a need for clear legislation in this area?
Ms Harrison: We are not pressing
the government on social tariffs. We are certainly pressing for
a need for a debate and a consideration of this. This is a very
interesting area.
Q259 Mr Drew: Some companies are
saying they are actually offering social tariffs, and there is
some question mark about whether they are genuine social tariffs,
other companies are saying "We do not need to because we
are targeting poor people in other ways" and some companies
say "It is not our role, this is the role of government."
As Ofgem you are the regulator so you must have a view and presumably
you are passing that back to government to say give us some clarity
in this area.
Ms Harrison: What we have said
is that we think there should be some minimum criteria for social
tariffs. We have set out what we think they should be, which is
in order for it to be described as a social tariff a customer
ought to be confident that it is going to be the lowest available
tariff in their area including, for example, by comparison to
on-line tariffs. I am particularly pleased that there are now
some suppliers who are beginning to move towards meeting that
standard. What we have not done, and what I think is something
for government, is to set out what we think minimum eligibility
ought to be and that really is a question for government. In essence
it is about deciding which customer groups ought to be entitled
to this level of support and of course conversely which should
not. Those are judgments which we think the government is best
placed to make. The other point I would make is that there is
a value in the arrangements as they exist at the moment because
what it does or means is that suppliers are really, in the context
of the competitive dynamic, looking to be innovative in the way
in which they identify householders among their customer base
who maybe ought to have access to the social tariff and similarly
they are also looking at being innovative in the way they are
packaging help so, for example, some social tariff measures are
also partnered by advice on access to benefits or are partnered
by energy efficiency advice which is again taking a more holistic
approach to targeting the issues, so we do see some value in that
approach.
Chairman: Can I thank you very much for
coming before us and for your written evidence and we much appreciate
your contribution to our inquiry.
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