Supplementary memorandum submitted by
Ofgem (EEFP 17b)
Ofgem were happy to contribute to the Committee's
final energy-focused investigation. As part of this, I wanted
to write to update you on developments to help tackle fuel poverty
and ensure an effective energy market for all consumers since
our December evidence giving session.
On 19 December, we published our social monitoring
report. This shows that real progress has been made over the past
year on social tariffs with over 800,000 customer accounts now
benefiting from a social or discounted tariff at the end of October
2008—almost double the figure from March 2008. This is largely
attributable to a higher level of awareness amongst consumers
following increased promotion by suppliers and others, partly
as a result of commitments agreed at Ofgem's April Fuel Poverty
Summit.
Last July, Ofgem published new guidance on the
categories of expenditure we would include when reviewing suppliers'
performance against their social spend. At the same time we introduced
a new stricter definition of a social tariff. To qualify under
this new definition, a tariff must be as good as the lowest tariff
offered by the supplier in the customer's area, irrespective of
payment method. Three suppliers are now adopting Ofgem's new standard
(Scottish & Southern Energy, Scottish Power and E.ON). This
standard offers reassurance to customers on a social tariff that
they could not get a better deal from that supplier even if they
changed payment method.
Our December report shows that for the period
2007-08, suppliers' collective expenditure on social programmes
totalled £57 million—over 90% of this is directed at
suppliers social tariffs, rebates and trust funds which provide
direct assistance to customers in, and vulnerable to, fuel poverty.
The savings to customers from being on social tariffs was £34
million—an increase of 36% on the previous year.
As we tackle the issues identified by Ofgem's
energy supply probe, we can make further progress for fuel poor
households who are off the gas grid or paying any unfair premiums
because of payment method.
At the end of last year, the suppliers had already
begun to respond to Ofgem's probe findings with over £300
million being removed from unfair premiums paid by consumers.
This included unjustified extra costs placed on some prepayment
meter customers and the out of area charges which penalised those
customers who had remained with their area's historical supplier.
While a positive step, in mid December, Ofgem made it clear to
the suppliers that more is expected of them. Customers off the
gas grid are particularly affected. Suppliers had indicated that
a further £200 million in reductions is coming to them and
other groups identified by the probe as missing out on the best
deals.
Encouraged as we are by these steps, we know
it is important to make sure this situation does not repeat itself.
It is vital that the energy market works well for all consumers
and with public concern about energy prices and the credit crunch
hitting consumers' pockets, our aim is to act as swiftly as possible.
On 8 January, we launched our consultation on proposals to introduce
new rules for energy suppliers to address the unfair pricing identified
in the probe.
The consultation considers four alternatives:
— an explicit obligation in the supply
licence for payment methods to reflect the cost associated with
them;
— a prohibition of undue discrimination
whereby a customer is denied better deals because of individual
circumstances;
— relative price controls; where a
benchmark tariff will be established. What suppliers can charge
above that tariff for certain payment methods will be subject
to Ofgem price controls; or
— a prohibition of cross-subsidy between
gas and electricity supply. This could be combined with any of
the above three alternatives.
At a minimum, we will seek to introduce a licence
condition to ensure cost reflectivity between payment methods.
Sarah Harrison
Managing Director, Corporate Affairs
January 2009
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