Memorandum submitted by British Gas (FP
25)
British Gas welcomes this inquiry by the Energy
and Climate Change Select Committee and is happy to provide the
following responses to the committee's questions:
1. Progress against Government targets AND
The definition of households in fuel poverty commonly used—ie,
those households where more than 10% of income has to be spent
on fuel for adequate heating
1.1 Fuel poverty is a complex interaction
of a number of factors including energy prices, quality of housing
stock and household income. The Government's fuel poverty strategy
was published in 2001 during an era of low energy prices. The
2000 Warm Homes Act set two targets, firstly to end fuel poverty
in vulnerable households by 2010 and secondly to eliminate fuel
poverty all together by 2016. Initial progress made towards these
targets was achieved at a time of low energy prices. Since 2001
a total of £20 billion has been spent on tackling fuel poverty,
and approximately £4.7 billion a year is currently being
spent (see appendix).
1.2 It is now widely accepted that the era
of cheap energy is over and the long term outlook for energy bills
is on the increase. This is partly due to the link that the UK
now has to more volatile international energy prices, partly due
to increasing numbers of environmental obligations placed on energy
bills, and partly due to the significant amount of investment
required by 2020. Ofgem recently indicated that bills could rise
as much as 25% by 2020 in order to secure new energy supplies
that are also low carbon at a total cost of £200 billion.
The Governments own Low Carbon Transition paper predicts that
bills will go up by £125 to cover the cost of green initiatives
by 2020.
1.3 The 2010 fuel poverty target will be
missed and concurrently achieving the 2016 targets will be very
difficult. This is in spite of significant amounts of investment
made by the Government.
1.4 A significant problem in achieving these
targets is the definition itself. The way in which fuel poverty
is defined places an unnecessary bias on the role of energy prices.
For example, if an individual household had an income of £1,000
a month and a £120 (12% of income)) fuel bill they would
be considered to be in fuel poverty. If this fuel bill were to
be reduced to £95 (a £25 reduction leading to 9.5% of
income spent on fuel bills) they would no longer be considered
to be in fuel poverty. If instead the household received £25
in benefits, increasing income to £1,025 and the bill remained
at £120 (11.7% of income) then the household would remain
in fuel poverty. In both scenarios the house hold is £25
better off, but only one is taken into account when measuring
the impact of fuel poverty programmes. This places too great an
emphasis on the role of the energy bill within this debate and
detracts attention away from the importance of energy efficiency
and benefits uptake.
1.5 Despite the material difference to the
house hold remaining the same in both scenarios, the fuel poverty
definition does not acknowledge this.
1.6 There is further an issue with identifying
the difference between those that are in poverty and those that
are in fuel poverty. During an economic down turn, and as unemployment
rises, the number of people struggling to pay all their bills
will increase. This in turn will have an upward pressure on the
number of people in fuel poverty, but this number will likely
rise in direct correlation to the number of people considered
being in poverty. A fuel poverty strategy must therefore be taken
as part of a wider poverty strategy, and not as an entirely stand
alone phenomena.
1.7 In an era of rising energy bills the
current target will become ever more difficult to achieve. With
this in mind, British Gas believes that there needs to be a root
and branch review of fuel poverty that includes the suitability
of the definition.
2. The coherence of the Government's initiatives
on energy efficiency
2.1 Energy efficiency measures are widely
accepted as being the most effective and sustainable way of tackling
fuel poverty and as prices rise the focus will increasingly be
on energy efficiency. Poor insulation means that £1 in every
£4 currently spent on heating UK homes is being wasted. Installation
of insulation can save customers on average £175 per annum,
and further considerable savings can be made from taking simple
energy efficiency steps.
2.2 Installation of energy efficiency is
part of the story. Through our Green Streets programme the IPPR
reported that a combination of energy efficiency and behavioural
change can see energy consumption decrease by 25%. The future
roll out of smart meters will empower customers to see how much
energy they are using in real time and empower people to be more
energy efficient. This roll out is a once in a generation opportunity
to also provide energy efficiency audits of homes around the country
so that the information provided by a smart meter can be acted
upon.
2.3 The Community Energy Saving Programme
(CESP) is an obligation on supplier and electricity generators
on a community basis. The total obligation is £350 million,
and British Gas will contribute £70 million. CESP promotes
a "whole house" approach ie a package of energy efficiency
measures best suited to the individual property. The programme
is delivered through community-based partnerships between Local
Authorities, community groups and energy companies, via a house-by-house,
street-by-street approach. This partnership working allows CESP
to be implemented in a way that is best suited to individual areas
and coordinated with other local and national initiatives. CESP
is expected to deliver annual average fuel bill savings for those
households involved of up to £300. This programme is still
being rolled out and is a prototype approach to how future energy
efficiency roll out may be targeted at areas of high levels of
social deprivations. We were the first supplier to announce our
first ten projects around the country, working with local authorities
and housing associations in Birmingham, Chester, Dundee, Glasgow,
Haringey, Swansea, Knowsley, Preston, Southwark and Walsall. Working
in partnership with Walsall Housing Group, British Gas has already
begun installing external cladding and new boilers in the area.
2.4 Although it is too early to make judgement
about the success of the CESP programme, British Gas believes
that this kind of partnership working offers an effective approach
to the roll out of energy efficiency. British Gas can bring a
wealth of experience in how to implement home energy efficiency
and local authorities, housing associations and third parties
can provide the expert knowledge of the local area.
2.5 Under the Carbon Emission Reduction
Target, and its predecessors, suppliers have consistently delivered
energy efficiency savings to their customers at least cost. 40%
of the target has been focused on the priority group or fuel poor.
Furthermore suppliers have applied much innovation to increase
take up of energy efficiency. For example the British Gas "here
to Help" scheme which has helped over 320,000 households
with a range of energy efficiency solutions, income maximisation
options and social measures to tackle the root causes of household
poverty working in conjunction with five charity partners. We
also encourage all our customers to complete our on-line Energy
Savers Report (ESR) which provides a free energy audit of the
energy efficiency of their home. The ESR shows the savings customers
could make for the improvements recommended. Over 2.2 million
customers have completed the ESR with an average recommended energy
saving of up to £175. In 2009, the report has been enhanced
further to allow customers to view the suitability of their homes
for solar and microgeneration.
2.6 In Scotland we are working closely with
the Energy Savings Trust to deliver stage 4 of the Scottish Government's
Energy Assistance Package (EAP). This targeted fuel poverty package
now includes working with vulnerable families, as well as elderly
customers. We are installing a range of new energy efficiency
measures including Air Source Heat Pumps and mobile home insulation.
Following a slow start in terms of stage 4 referrals, we have
seen an upturn in applications meaning that we envisage we will
achieve a target of 10,000 central heating system installations
by the end of March. We have also undertaken to complete installations
by the end of March for all those who applied before Dec 2009.
In less than 5% of cases we require additional contributions,
partially be cause of the rate at which the grant maxima is set,
but also because of efficiency savings made by British Gas enabling
more money to ploughed into deliver.
2.7 We have worked with a wide range of
stakeholders including local authorities, charities (including
Help the Aged, Save the Children, National Debtline, RNIB and
Family Welfare Association), housing associations, community groups
and retailers. We have been hugely successful in encouraging a
mass take-up of energy efficiency products by British households
in the last five years, and have supported the delivery of over
100 million products, including the insulation of more than 1.5
million homes.
3. The methods used to target assistance
at households which need it most
3.1 We welcome the steps the Government
have taken to improve data sharing with energy suppliers and are
currently working with the Department for Work and Pensions to
achieve a greater level of access to its benefits data to enable
us to better target the fuel poor. If successful, this will help
to ensure that a greater proportion of the money invested in addressing
fuel poverty goes to providing further support rather than to
funding targeting and marketing initiatives by suppliers which
are currently inefficient.
3.2 Identifying vulnerable and fuel poor
customers has always been a challenge for the industry and for
some time we have been calling for the Government to share data
with suppliers to help improve targeting of the help available
to those that need it most.
3.3 In the absence of data sharing British
Gas has in place a number of procedures that help us identify
if a customer is vulnerable. Our call centre staff is trained
to identify signs of vulnerability and make a note on the customers
account. A "flag" is then placed on the account so that
future contact with this customer is monitored and help offered
were necessary. British Gas also works with a series of charity
partners that reference customers to our programmes and help us
identify what the most appropriate form of assistance for that
particular individual. There is a significant cost associated
with suppliers identifying, both in terms of man hours and money.
It is on this basis that British Gas has been calling for greater
data sharing between Government and supplier. One significant
outcome of the data sharing project will be that it will help
identify how successful suppliers have been at identifying those
customers whom it has assisted that are in fact in fuel poverty.
From this programme learnings can be gained that will significantly
improve targeting.
4. Social tariffs and plans to put social
price support on a statutory footing
4.1 Social tariffs are one of a number of
ways of helping poor and vulnerable customers stay warm in winter.
However, we are concerned that if social tariffs were mandated
that this could present a number of unintended consequences, not
least significantly increasing the bills for non fuel poor customers
if energy suppliers are required to offer a social tariff to an
unprescribed group of fuel poor customers.
4.2 The current arrangements have seen suppliers
spend far more than was agreed. As an industry we agreed to spend
£100 million in 2008-09, the actual spend was closer to £150
million. British Gas alone agreed in this time period to spend
£35 million, and the actual spend was closer to £82
million. British Gas has over 300,000 vulnerable customers on
its social tariff, more than any other supplier, saving on average
£123 a year on their bills.
4.3 There are steps being taken in the current
Energy Bill that seek to place prices support schemes on a mandatory
basis. As we don't know the details of the scheme yet as these
are subject to consultation later in the year, it is difficult
to know what the full impact of this will be. However, the Chancellor
announced in the pre Budget report that the six energy retailers
would be expected to spend at least £300 million per year
by 2013-14, a significant increase on current arrangements.
4.4 If the recipient group is defined too
widely then the benefits received by this group will be limited
(spreading limited resources around a larger group of people).
If the amount spent on social tariffs by suppliers are increased
then this would add significant costs to British Gas and would
likely be reflected in other customers' bills, with the potential
unintended consequence of pushing more people into fuel poverty.
5. Winter fuel payments and cold weather
payments
5.1 The Winter Fuel Payment provides valuable
support to some vulnerable and fuel poor customers. However, it
is not targeted and is available to any elderly customer over
the age of 65—missing several large groups of vulnerable
customers and not taking poverty into account. Consideration should
be given as to whether the Winter Fuel Payment could be better
targeted to ensure that it has the maximum impact on those that
need help the most. It is currently estimated that only 18% of
winter fuel payments are fuel poor.
5.2 Currently everyone over the age of 65
receives an annual payment of £200 increasing to £300
for the over 80s, irrespective of income at a cost of £2
billion-£2.5 billion per year to the taxpayer. This contribution
goes some way to cover the annual cost of energy bills but often
is not used to pay the energy bill. We believe that Winter Fuel
Payment should be paid directly to suppliers so that we can offset
this against their energy bills. As described above, with regards
to the impact of direct payments versus energy bill reductions,
this would have a much more significant impact on achieving fuel
poverty targets. In addition, we also believe that consideration
should be given to the timing of year the winter fuel payment
is made and better targeting, possibly considering whether recipients
receive higher payments on the basis of need rather than age.
5.3 More broadly, maximising household income
and ensuring sufficient take up of Government benefits can also
play an important role in tackling fuel poverty. A study undertaken
by the London School of Economics on behalf of the British Gas
Help the Aged Partnership shows that individual pensioners could
be losing up to £50,000 on benefits over a lifetime, or £1,500,
per annum by not claiming their entitlement. These benefits currently
sit in the Government's pot of £4.5 billion unclaimed benefits
for older people, but one in three pensioners are not aware of
whom to turn to for help and advice on how to access these entitlements
which could amount to between £5,000 and £50,000 per
individual over a lifetime. Further consideration should be given
to how benefits uptake can be improved by increasing awareness
of what people can claim and by simplifying the process for claiming
benefits.
5.4 We continue to support the use of Fuel
Direct in helping gas and electricity customers in debt pay their
energy bills. We believe more consideration should be given as
to how this valuable payment tool can be maximised and used most
effectively. Fuel Direct can also provide a good source of leads
for energy efficiency measures, which is a sustainable way to
help customers reduce their energy bills.
6. Support for households which are not connected
to the mains gas grid
6.1 British Gas is currently involved in
a number of projects that are providing valuable insight into
how energy efficiency models can be applied to homes and communities
off the gas grid. This includes the above CESP programme.
6.2 Through our Green Streets programme
we have identified 14 communities across the country that will
share in a £2 million fund to aide them in becoming more
energy efficient. The village of Ingram will include a significant
number of off grid properties. The village will receive around
£140,000 to spend on energy saving measures in Ingram and
in the associated rural community. Solar photovoltaic tiles and
air to air heat pumps will be installed on Ingram Village Hall,
generating energy for the village. Finally, the project participants
will work together to save a certain % of energy in their own
homes. All of these homes will be provided with a home energy
assessment, which will identify the energy efficiency measures
that are most appropriate to them and provide behavioural advice.
Where technically feasible, they will also receive smart meters
for their electricity supply.
6.3 British Gas is also working in partnership
with a number of local authorities to explore the further solutions
to off gas grid customers energy efficiency solutions. Working
with Dumfries & Galloway we are targeting homes without a
gas supply and with microgen technology to provide lower cost
options to traditional oil/electrical system.
6.4 Some of the challenges that currently
exist within this sector including knowing what patterns consumption
that homes have. Without any long term meter readings it is more
difficult to know what solution are most appropriate. These British
Gas projects are useful pathfinders that will help us identify
how we are best able to improve the level of energy efficiency
for this group of customer and how best they can be targeted.
February 2010
APPENDIX
BRITISH GAS'S
COMMITMENT TO
VULNERABLE CUSTOMERS
British Gas is committed to helping its vulnerable
customers and is proud to be the market leader in this area. Ofgem
figures show that in 2008-09, British Gas accounted for 52% of
the total industry spend on the voluntary programmes, equating
to around £80 million. This is almost twice the spend committed
to under its voluntary agreement with the Government. We further
agreed to spend £41 million in 2009-10 and again look set
to spend considerably more again. We also have the largest social
tariff of any supplier with over 300,000 customers currently receiving
our Essentials tariff. Rates on Essentials will be lower than
our standard tariff, saving Essentials customers on average £123
on their annual fuel bill.
ANNUAL SPENDING ON FUEL POVERTY
Programme Funding
| Annual Investment £m |
Winter Fuel Payments (WFP) (Aged over 60 in receipt of qualifying benefit)
| 2,500 |
Cold Weather Payments (Vulnerable households on low income)
| 200 |
Warm Front—England (Aged over 60 and in receipt of benefit)
| 374 |
Energy Assistance Package—Scotland (Vulnerable and low income households)
| 51 |
Decent Homes Standard—England (Social Housing)
| 700 |
Supplier Voluntary Agreement (Ofgem definitions)
| 150 |
CERT (Priority customers) |
600 |
CESP (Communities in lowest 10% income bracket)
| 116 |
| Total | *4,700
|
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SOCIAL TARIFF
SPEND
British Gas spent £77.4 million on social tariffs in
2008-09. In addition £3.3 million was donated to the British
Gas Trust Fund and £1 million spent on charitable partnerships.
In total therefore British Gas contributed £82 million voluntary
spend in 2008-09 towards the supplier agreement. The total for
2009-10 will depend on many factors such as take up of the Essentials
tariff, consumption etc. but is currently forecasted to be between
£60 million and £65 million.
ACTUAL SOCIAL SPEND VS AGREED SOCIAL SPEND UNDER THE 2008-11
VOLUNTARY AGREEMENT
| 2008-09 | 2009-10
| 2010-11 |
| Industry agreement | £100 million
| £125 million | £150 million
|
British Gas share | £34 million
| £42 million | £49 million
|
British Gas actual spend | £82 million
| £65 million(est) | TBD
|
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As the above table shows, British Gas agreed to spend £34
million in 2008-09, our actual spend was £82 million—140%
higher than that committed to. In 2009-10 and 2010-11 our agreed
spend is £42 million and £49 million respectively. Total
estimated British Gas spend between 2008 and 2011 will be c £200
million, 33% higher than our agreed spend of £150 million.
These figures do not take into account the additional £70
million British Gas will be spending on the Community Energy Saving
Programme over the next three years or the free energy efficiency
advice and measures provided to the priority group under the CERT.
At March 2009 (Ofgem "Monitoring Suppliers' Social Programmes
2008-09", 18/9/09), British Gas supplied 519k out of the
industry total of 1m accounts on social tariffs. This is more
than 50% of all accounts compared to our market share of 32%.
BRITISH GAS
PROGRAMMES
Essentials Programme
British Gas has a dedicated helpline for customers who have
specialist requirements and for customers on benefits and very
low income. The programme offers benefits assessments and access
to free impartial debt advice, energy efficiency products and
a range of extra help from our charity partners.
As part of this programme, British Gas has introduced a special
tariff, Essentials, aimed at cutting gas and electricity bills
for our most vulnerable low income customers. We currently have
over 300,000 customers on the Essentials tariff saving up to £264
on average per annum compared to a standard tariff. The tariff
represents a £77.4million spend by the company and is open
to existing British Gas customers in receipt of at least one of
a number of specific Government benefits.
British Gas Energy Trust
British Gas has established the British Gas Energy Trust
for customers to apply for grants and sustainable advice to manage
their energy payments. The Trust also funds third party debt advice
and in cases of extreme need, awards customers for other non-energy
related debts and essential household costs.
British Gas has committed to the Trust for a further four
years, taking the total committed by British Gas to the Trust
to £21.3million since 2005. The Trust is run independently
of British Gas and is a registered charity.
"here to HELP"
The largest social initiative of its kind in the UK, "here
to HELP" is a unique coalition between the public, private
and charity sectors, delivering real benefits to vulnerable and
fuel poor households. The scheme aims to tackle the root causes
of household poverty by improving the living conditions and quality
of life in some of Britain's most deprived communities. The programme
offers energy efficiency products, benefits assessments, essential
appliances and adaptors, home security measures, and advice from
our charity partners who include Help the Aged, Scope and the
RNIB.
To date, the scheme has covered nearly 600,000 homes and
has found unclaimed benefits totalling nearly £12.9 million.
On average, qualifying applicants are over £1,500 a year
better off as a result of the benefit health check alone.
Free Insulation to those Aged over 70
Insulating the home is one of the most effective ways to
keep warm and cut energy bills.
British Gas customers over 70 years old or on income related
benefits may be able to get their home insulated for free.
British Gas ExtraCare
British Gas has given a voluntary public commitment not to
disconnect anyone we know to be vulnerable. "ExtraCare"
is the process we have adopted to help us proactively identify
signs of vulnerability amongst our customers; how we keep this
information on our systems and what we need to do once we have
identified someone as being potentially vulnerable. As part of
our day to day contact with our customers, we listen out for any
signs the customer may give us that might indicate that they are
vulnerable.
British Gas Home Energy Care Register
Our Home Energy Care Register provides essential services
for some of our most vulnerable customers and around 560,000 customers
now benefit from the service. The Home Energy Care Register is
a priority service register for all our gas and/or electricity
customers who are elderly, disabled or chronically sick. It enables
us to record any specific requirements these customers may have
and helps us to provide them with services appropriate to their
needs.
Home Heat Helpline
The national Home Heat Helpline was launched in 2005, offering
help to customers struggling to pay their energy bills. The service
is run by the Energy Retail Association and is funded by British
Gas and other major energy suppliers. It gives one point of contact,
connecting customers to advice and help from their energy supplier.
A specialist British Gas team takes the calls from British Gas
customers and connects them to the most appropriate support.
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