Memorandum submitted by the Federation
of Petroleum Suppliers (FP 05)
SUMMARY
The Federation of Petroleum Suppliers Ltd (FPS)
considers it important that the Committee is aware of the structure
of the heating oil distribution industry in its inquiry into fuel
poverty. FPS submits a resume of the position of heating oil distributors,
together with views on assisting fuel poor households that use
oil as a heat source and the lack of a common approach by Government
departments to tackling climate change.
FPS wishes to address the following two items
of those under consideration:
— Social tariffs and plans to put social
price support on a statutory footing.
— Support for households that are not connected
to the mains gas grid.
The oil distribution industry is concerned at
the increasing number of vulnerable customers who are finding
it difficult to pay for heating oil. However, heating oil distributors
are mostly small businesses operating in a spot market and, unlike
the large utility companies, are unable to offer financial assistance
to these customers. Consequently, our views on the action that
can be taken to alleviate fuel poverty amongst heating oil end
users are as follows:
— Oil distributors have budget payment
plans but are not in a position to subsidise customers beyond
that.
— The industry is highly competitive so
that customers can take advantage of any fall in the price of
oil by choosing when and from whom to purchase.
— Oil prices change on a daily basis and
so there are no tariffs for heating oil.
— Oil remains the best option for those
not on gas mains as the heating system is cleaner and easier to
operate than coal and cheaper than LPG.
— Government funding is best aimed at reducing
annual running costs through insulation, solar heating and installation
of condensing oil boilers.
— The UK Government should propose to the
EU that VAT on domestic heating bills is reduced to zero.
— The different Government departments
involved in implementing EU legislation on the various aspects
of climate change must work together to produce cohesive policies.
— The DWP Third Party Payment Creditor
Scheme should be extended to permit payments for coal, LPG and
oil.
THE FEDERATION
OF PETROLEUM
SUPPLIERS
The Federation of Petroleum Suppliers (FPS)
is the trade association for the oil distribution industry in
the UK and the Republic of Ireland. It represents the majority
of distributors in Great Britain from the small family business,
which forms the greater part, to the distribution arms of some
of the major oil companies—a total of around 2,750 road
tankers. The Federation's members are responsible for almost all
deliveries of heating oil to end users in Great Britain.
COMMENTS
1. Introduction
1.1 Oil distributors are concerned at the increasing
number of their customers who are having difficulty in paying
for oil to run their heating systems. Whilst distributors are
not in a position to subsidise these customers, they are keen
to look at other ways in which they can assist them.
1.2 There are around 250 oil distribution companies
in Great Britain and approximately 300 in Northern Ireland. The
majority are small, family-run businesses. They purchase heating
oil from the refiners and importers at market prices, which change
on a daily basis.
2. The market situation of the oil distribution
industry
2.1 The high prices that oil has been attracting
in recent times has put considerable pressure on oil distribution
companies, as credit limits with their suppliers have not increased.
The ensuing tightening of cash flow positions in a highly competitive
industry has resulted many distributors' becoming unviable and
having to sell their businesses to larger companies.
2.2 Reports from industry analysts Plimsoll
Publishing Ltd confirmed that 2008 was a difficult year for the
oil distribution industry and 28% of the companies analysed were
losing money as a direct consequence of rising costs and price
reductions. 2009 was also a difficult year because of the recession,
with most companies reporting profits of less than 1% according
to Plimsoll. Their analysis last month (January) reported that
more job losses and cost cutting are necessary if distributors
are to survive.
However, at the moment, there remain sufficient
players in the market to ensure that the price of heating oil
to end users is extremely competitive.
2.3 The heating oil market is a volume driven,
low margin market. Excluding duty and VAT, UK prices for heating
oil and other fuels are amongst the lowest in Europe. Price controls
to address fuel poverty would be disproportionate.
2.4 There is a number of oil distributors in
each locality from whom customers can buy oil. These can be found
in Yellow Pages or via the FPS website. It is therefore
simple for customers to phone round to get the most competitive
price. As heating oil is purchased on a spot market basis, they
have no contract with and so are not tied to a particular supplier
and can shop around as they wish.
2.5 The financial costs of fuel for households
off the gas mains are not always as high as popular belief would
have. The latest figures from the independently compiled Sutherland
Tables of Comparative Domestic Heating Costs, which show that
the annual costs of heating and hot water for a three bedroom
house, using the various fuels at prices averaged over the six
months to October 2009, are:
| Housecoal (Open fire and radiators)
| £1,171 |
| Electricity (Storage heaters, radiators and immersion)
| £1,191 |
| Mains gas (Condensing boiler) | £856
|
| LPG (Condensing boiler) | £1,360
|
| Oil (Condensing boiler) | £818
|
| |
Copies of the Sutherland Tables can be obtained via ww.sutherlandtables.co.uk.
Whilst the price of heating oil did rise considerably for
a period last year, suppliers responded swiftly when the price
fell again.
Because the price of oil responds swiftly to changes in the
price of crude, it gives customers the opportunity to stock up
when the price is low.
3. Industry assistance for vulnerable households
3.1 Almost invariably, distributors offer monthly payment
schemes to customers. Until recently, the majority of distributors
would try to ensure on a charitable basis that vulnerable customers
were not left totally without fuel. However, the numbers of fuel
poor have increased to a level whereby they can no longer afford
to do this.
3.2 The price the distributors pay for oil varies on a daily
basis. The price the customer is charged depends on this and also
on a number of other variables, such as delivery volume, location
of the delivery site, whether a number of deliveries in the same
neighbourhood can be combined to cut down on costs, ease of access
to the delivery site—some need "mini" tankers
where there is limited access, etc. Because of these variables,
distributors do not operate payment tariffs and a "social
tariff" is not applicable.
4. Government assistance for vulnerable households
4.1 FPS endorses the Government's initiative to provide financial
assistance for vulnerable households to become more energy efficient
and so reduce running costs permanently—and hopefully to
a level that the households can afford. This seems a more sensible
use of funds than continuing to subsidise higher running costs
year after year.
4.2 For households using oil for heating, FPS recommends
Government support for better insulation, solar panels and condensing
boilers. Oil condensing boilers are the most efficient on the
market at up to 97% SAP seasonal efficiency ratings compared with
93.3% for LPG and 91.5% for mains gas. (Source: DEFRA's Boiler
Efficiency Database—http://www.sedbuk.com). This would be
a cheaper and less disruptive solution for households off the
gas mains than extending the gas mains to areas of low density/sparse
housing. Also, it would avoid the inequity of taxpayers' money
to be used to provide extensions to the privately owned gas mains
infrastructure.
4.3 The Dept for Work and Pensions operates a third party
payment creditor scheme. Under this scheme, gas and electricity
suppliers can be paid by DWP for supply to customers with outstanding
debts to maintain supply or to prevent any further debt accruing.
If this scheme were to be extended to coal, LPG and oil distributors,
it would be of great benefit to many of the fuel poor who require
immediate help with fuel bills.
4.4 President Sarkozy suggested some time ago that the EU
should perhaps consider reducing the minimum VAT level on domestic
heating fuels to zero, as so many consumers are struggling to
pay for heating. FPS suggests that the UK Government should formally
propose such a measure to the EU. Although it would achieve only
a small reduction in bills, these small amounts would help those
on low incomes.
5. A consistent approach to energy efficiency
5.1 FPS considers it of paramount importance that the different
Government departments involved in the various climate change
measures and fuel poverty work together to produce consistent,
complementary policies.
5.2 FPS is currently working with DECC's Low Carbon Business
Unit to encourage and help end users to increase their energy
efficiency under the Energy Services Directive. Part of the FPS
and its members' work on this is to encourage customers to change
to more efficient condensing boilers and install better insulation
and solar panels, as well as considering using a biofuel/mineral
oil mix fuel.
5.3 DECC's Renewable Heat Team is proposing to implement
the Renewable Heat Incentive Strategy in direct conflict with
the Energy Services Directive and Fuel Poverty policies.
The Renewable Heat Incentive Strategy proposes placing a
further levy on fossil fuels in addition to the Climate Change
Levy. Money raised from this new levy will be used to subsidise
conversion of households and businesses without access to mains
gas to renewable heating fuels. However, the new levy will place
an additional financial burden on the fuel poor. Although they
will be able to take advantage of the subsidies, many fuel poor
households are in rented accommodation where conversion to renewable
heating sources will be the landlord's decision and many others
will need assistance in evaluating and changing to renewable heat
sources.
February 2010
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