Memorandum submitted by RWE npower (FP
36)
EXECUTIVE SUMMARY
(a) Without wholesale change and better
targeting of finite resources, we believe the Government's target
of eradicating fuel poverty by 2016-18 will continue to remain
an aspiration, rather than an achievable target.
(b) Fuel poverty is part of the wider problem
of poverty and social exclusion. The majority of fuel poor households
are the poorest households overall: 91% of the fuel poor are from
the three lowest household income deciles, compared to only 13%
of the non-fuel poor.
(c) The fuel poverty definition is specifically
designed to ensure adequate heating levels can be achieved; therefore
suppliers of alternative heating fuels—such as LPG and heating
oils should also be required to participate in fuel poverty reduction
schemes (eg those proposed under the Energy Bill).
(d) With regard to the Energy Bill, further
clarity is urgently required regarding the criteria for determining
the eligibility of supplier's existing schemes (such as RWE npower's
Health Through Warmth scheme, see Appendix 2) for inclusion as
part of the proposed grandfathering scheme.
(e) We continue to advocate changes to the
Winter Fuel Payment scheme, to ensure that its significant funding
is targeted more effectively at those who require assistance with
their winter fuel bills, and to delay the payment of this benefit
in order that the payment of the benefit is better aligned to
the arrival of the larger winter bills.
PROGRESS AGAINST
GOVERNMENT'S
FUEL POVERTY
TARGETS
1. Fuel poverty is part of the wider problem
of poverty and social exclusion. The majority of fuel poor households
are the poorest households overall—91% of the fuel poor
are from the three lowest household income deciles, compared to
only 13% of the non-fuel poor.
2. We agree with the Government that the
continued increase in fuel poverty numbers is disappointing. However,
we believe this underlines the need for an effective, consistent
and complementary approach to energy efficiency and fuel poverty.
The focus has to be on increasing the energy efficiency of homes
and household income rather than the continued provision of discounts
against energy costs, which can not provide a sustainable solution
to fuel poverty.
3. To further enhance the accuracy of fuel
poverty reporting, improvements could be made to the frequency
of data collection, analysis and publication. The most recent
data contained in the Fuel Poverty Strategy Report from DECC only
goes up to 2007. Whilst it is appreciated that gathering and then
analysing the data takes time, more frequent reporting by DECC
would ensure that there is an accurate and up-to-date view of
the scale of fuel poverty and early visibility of newly emerging
trends. This would also assist with the assessment of the relative
impact of various initiatives on the number of households in fuel
poverty, which is not possible at the moment.
4. Additional resource must be provided
to ensure that those on the lowest incomes are accessing and receiving
all the income (and support) to which they are entitled. Figures
published by the Department of Work and Pensions in June 2009
showed that between £6.33 billion and £10.5 billion
of benefits went unclaimed. To date, RWE npower has used benefit
entitlement checks as part of the Warm Wales scheme to identify
unclaimed benefits to which customers may be entitled. This has
brought over £2.8 million of additional income to the residents
of Neath Port Talbot and Wrexham, raising their household incomes
and assuming the additional income is spent on fuel, reducing
the risk and/or severity of fuel poverty.
5. However, without wholesale change and
better targeting of finite resources, we believe the 2016 target
of eradicating fuel poverty in England will continue to remain
an aspiration, rather than an achievable target.
DEFINITION OF
HOUSEHOLDS IN
FUEL POVERTY
6. RWE npower believes the basic definition
of fuel poverty used is currently fit for purpose. We support
the use of a single, consistent definition of fuel poverty throughout
the UK for both legislation and as a commonly understood concept.
We reiterate that the focus of the definition of fuel poverty
must relate to the cost of heating a home adequately, rather than
the total energy costs (which would also include lighting, and
non-heating related electrical appliances).
7. Therefore any future proposals to address
fuel poverty effectively (in particular for the rural fuel poor)
should include suppliers of alternative fuels (such as heating
oil, LPG and coal).
COHERENCE OF
GOVERNMENT'S
INITIATIVES ON
ENERGY EFFICIENCY
8. From our experience of delivering both
EEC and CERT, we have found that a single framework to tackle
both CO2 abatement and fuel poverty can be sub-optimal. Energy
efficiency is part of the fuel poverty solution and in turn provides
CO2 reduction benefits (it is axiomatic if consumers use less
energy or switch to less carbon intensive fuels). However, the
enabling legislation for CERT (which is framed purely in CO2 emission
reductions) requires Ofgem to take a narrow interpretation when
issuing its guidance and rules for compliance.
9. We believe that this prevents measures
that can deliver significant benefit to fuel poor households from
being installed, as they fall outside the scope of Ofgem eligible
measures. For example, during the EEC2 scheme suppliers were able
to install A-rated highly efficient boilers. Similar schemes are
significantly restricted within CERT as they breach Ofgem's additionality
rules for CO2 compliance. However, we believe it is these kinds
of measures that can make significant improvements through the
delivery of more efficient and cost effective heating to fuel
poor households, instead of delivering against a specific CO2
emission reduction.
10. Therefore, we believe that there should
be two frameworks going forward post-2012. One, which is clearly
focused on delivering CO2 reductions, with some consideration
as to how the benefits can be distributed equitably, and another
focused on the reduction and eventual eradication of fuel poverty.
The enabling legislation for the fuel poverty framework should
be framed in such as way as to enable measures that bring additional
comfort, improve heating quality and reduce energy bills to be
deployed. Where a particular measure achieves both CO2 reductions
and reduces fuel poverty, this should be counted against both
frameworks' targets.
11. We believe serious consideration should
be given to central coordination of the identification and targeting
of fuel poor households; including data provision at local, devolved
and national government levels. Energy suppliers and other organisations
could then compete to deliver the services, rather than compete
(and incur significant costs) to find those customers. Greater
data sharing powers are likely to be required in order for suppliers
to effectively identify and support those customers deemed eligible
for support.
12. This issue has been further highlighted
in DECC's current proposals for the CERT extension, with energy
suppliers potentially required to identify a specific subset of
the current Priority Group.
METHODS USED
TO TARGET
ASSISTANCE AT
THOSE MOST
IN NEED
13. We fully support the use of effective
data-sharing in order to better target efforts to reduce fuel
poverty. We are keen to see the results of the ongoing Fuel Poverty
Review and would ask that this is published soon. Without the
results of this research, it is hard to know which group of customers
is likely to be the most in need of assistance, given that fuel
poverty is impacted by a combination of household income level,
the energy efficiency levels of the property as well as the cost
of energy.
14. Given the current high levels of fuel
poverty (estimated to be 5.5 million households); we believe a
targeted approach should be adopted, which seeks to assist those
currently in or at risk of severe fuel poverty first. We believe
there should be greater sharing of data between Government (and
local government) departments. Local Authorities are responsible
for administering certain benefits (eg council tax benefits) and
therefore could be considered as part of the mix of solutions.
These could take into account both the income level and likely
energy efficiency rating of the customer's property, to identify
customers most likely to be in fuel poverty, so that their needs
can be addressed first. This information sharing could also be
supported via other non-traditional agencies—including the
NHS and local Primary Care Trusts as well as third sector organisations.
15. Our current Ofgem accredited social
tariff, Spreading Warmth, attempts to ensure only those most likely
to be in fuel poverty are eligible for the tariff, based on the
level of household income and evidence of vulnerability. We believe
that there are several, sometimes discrete sections of the population
who will be at risk of being fuel poor and that, therefore, total
household income level is a valid proxy for fuel poverty.
SOCIAL TARIFFS
AND PLANS
TO PUT
THE SOCIAL
PRICE SUPPORT
SCHEME ON
A STATUTORY
FOOTING
16. We support putting the Social Price
Support Scheme (SPSS) on to a statutory footing. It provides transparency
and a consistent approach by suppliers. However, we do foresee
some potential issues with the current proposals for the "3-tiered"
system including the likelihood that some customers may benefit
more or less than others, depending on whether they were pre-existing
customers benefiting from a suppliers' social tariff (assuming
they offer one), or whether they are identified as being those
in or at risk of fuel poverty.
17. We prefer a uniform rebate approach
where all eligible customers would receive the same level of benefit.
This would be more equitable, provide greater clarity to customers
and other stakeholders, and be simpler and more cost-effective
to administer.
18. Based on our experience of the data
sharing pilot, we are also concerned at the lack of time to assess
the results of the pilot and prepare for the SPSS. Government
needs to ensure that there is proper consultation on the mechanics
of the data share scheme, including eligibility criteria, as well
as allowing sufficient time to develop appropriate market mechanisms
(eg the reconciliation scheme), to develop suppliers' systems,
to establish and deliver effective processes and for the communication
of these in time for an April 2011 start. This will be a tight
schedule given that the pilot (assuming all deadlines are met)
may not have completed the project evaluation until July/August
2010 at the very earliest.
19. We also request urgent clarity on the
likely roll out of obligatory spend required by suppliers ie the
target spend of £300 million by 2013-14. The sooner suppliers
have this information, the more effective the planning and roll
out of associated fuel poverty-based programmes can be, and what,
if any of the current schemes operated under the voluntary agreement
will be considered eligible spend under the statutory scheme.
For example, RWE npower currently funds the award winning Health
Through Warmth schemes within 15 areas in England and Wales. Any
changes that could impact the longer term funding for these schemes
need to be clarified as soon as possible.
20. We would ask that greater clarity be
provided in terms of the existing supplier schemes (such as Health
Through Warmth) and how these will be treated in the SPSS world.
21. We take comfort in Mr Kidney's explanation
on 14 January 2010 to the Energy Bill Committee on how certain
elements of the grandfathering activities of supplier's current
voluntary agreement would be likely to continue in the new SPSS
world:
"Suppliers offer an array of services under
the current voluntary agreement. Over the coming months, we will
assess which contributions under the voluntary agreement should
count under the legacy spending element of the mandated scheme.
It is therefore vital that the clause allows for the continuation
of the different elements currently included, and subsection (4)
does just that.... Subsection (4) also covers the continuation
of pre-existing arrangements, which means the continuation of
work under the existing voluntary agreement. Examples of that
work include non-direct benefits, such as benefit entitlement
checks and energy efficiency advice for the fuel poor above and
beyond suppliers' obligations through other schemes".
However, we would request that the assessment
of which schemes will count towards the legacy spend element (in
particular Health Through Warmth and debt write off for vulnerable
customers) be completed as speedily as possible. Details of the
likely criteria to be applied in the judgement of existing supplier
schemes should be made available at the earliest possible opportunity.
WINTER FUEL
PAYMENTS AND
COLD WEATHER
PAYMENTS
22. The Winter Fuel Payment (WFP) is currently
paid to all who are over-60 (including higher rate tax payers),
and costs the taxpayer around £2.7 billion per annum. Given
the financial constraints facing the public purse, we believe
it is unfair and wasteful that this payment is not means-tested
or restricted in some other way, (for example, to those who are
lower rate taxpayers).
23. If the WFP is deemed to be part of the
Government's armoury to tackle fuel poverty, then we (like the
EFRA Select Committee) believe that it should be targeted at those
who need it the most. The savings arising could be used either
to support more vulnerable households (not just pensioners), or
to increase the amount paid to those poorer pensioners.
24. As an interim step, we continue to advocate
the rescheduling of the payment of the WFP until after Christmas
(and ideally between February and March) so that the additional
funds are available when the largest (winter) bills are likely
to start to arrive. In an ideal world, through data-share, the
WFP should be offset directly against customers' bills, thereby
ensuring that the funds are used to contribute towards the higher
costs of winter heating, rather than being subsumed into general
household expenditure. In addition, a direct payment against customers'
bills is a much more efficient way of addressing fuel poverty
than an increase in their income by the same amount.
25. With regard to cold weather payments,
we believe these are more effective-because they are triggered
by cold weather, which has a direct impact on the energy use required
to heat the home. In addition, as these payments follow cold weather
events there is a causal link between the increased benefit payment
and the need for increased heating. We also believe that it is
right that a much wider (means-tested) group of individuals benefit
from these payments, as fuel poverty is by no means confined to
the elderly.
26. Whilst, ideally, these payments would
be applied directly to fuel bills, we believe that the provision
of additional funding in periods of sustained cold weather is
an appropriate incentive to vulnerable customers whose ability
to remain warm may be adversely impacted by cold weather.
27. We do have some concerns that for many,
eligibility for this benefit is on the basis of take-up of other
gateway benefits including Pension Credit, since there are a significant
number of customers known to be eligible, but who have not applied
to receive those benefits.
SUPPORT FOR
HOUSEHOLDS NOT
CONNECTED TO
MAINS GAS
GRID
28. As fuel poverty is defined in terms
of the cost required to adequately heat a household, we do not
understand the current exclusion of alternative forms of heating
from the fuel poverty scheme, particularly when those without
access to the mains gas grid are often at higher risk of fuel
poverty. We would like to see LPG and heating oil providers also
contribute towards alleviating fuel poverty, which can be exacerbated
by the higher costs associated with those fuels and the possible
more frequent price fluctuations as these fuels are closely linked
to the oil price.
29. It seems unfair that electricity and
gas suppliers and their customers will effectively cross-subsidise
those customers off the gas grid network, as this may result in
many fuel poor customers subsidising other fuel poor customers.
30. We believe CERT and CESP should enable
the deployment of renewable heating systems and urge Government
to provide additional carbon allowances for the installation of
renewable heating to off gas grid fuel poor customers, to ensure
these can be used as a viable alternative to LPG/fuel oil. This
would also complement the proposed Renewable Heat Initiative (RHI)
and Feed In Tariff (FIT) by helping to overcome the barrier of
customers having to provide the necessary up front capital. Currently,
the carbon allowances available for such installations are not
cost-effective and are unlikely to support the roll out of such
measures for those off the mains gas grid.
February 2010
APPENDIX 1
NPOWER'S SPREADING WARMTH PROGRAMME
Spreading Warmth provides a holistic programme
of measures aimed at helping our most vulnerable customers. Spreading
Warmth has been awarded a Big Tick from Business in the Community,
reflecting our innovation in this area. In addition to benefiting
from the our social tariff, Spreading Warmth also helps many of
these customers in other ways including benefits entitlement checks,
payment method advice, assistance with outstanding energy debts
and access to free energy efficiency advice and measures.
Our Spreading Warmth tariff, (which is an accredited
Ofgem social tariff) is open to customers, whose gross household
income is less than £13,500 per year and someone in the household
meets at least one of the eligibility criteria below:
— suffers from a chronic illness; or
Spreading Warmth also comprises:
(a) A central access point for vulnerable customers
through our Warm Response Line, which provides a personal response
to each customer and acts as a fully-integrated, internal referral
mechanism to maximise the assistance provided to each customer.
(b) An energy efficiency advice telephone service
including close examination of the customer's energy bills and
payment history to provide personalised and relevant advice.
(c) npower has a network of in-home advisors
who specialise in providing face-to-face advice in how a customer
can heat their home affordably. Integrated within this service
is the provision of real-time display devices to the customer
so they can understand their household's electricity consumption.
(d) npower's First Step programme, which provides
one-to-one account management for customers who are struggling
to pay for their energy usage. A customer is provided with the
name and direct line telephone number of their account manager
who will work with them to help them manage their account independently.
As a customer progresses towards this objective, they are likely
to be eligible to have any outstanding debt cleared.
(e) Warm Response Service—this includes
free gas safety checks; quarterly meter reads; audio, Braille
and large print bills; a password protection scheme to prevent
fraudulent visits and calls; meter moves.
APPENDIX 2
HEALTH THROUGH WARMTH
(a) One of the many challenges in delivering
assistance to fuel poor households is identification, since there
is no perfect proxy for fuel poverty. This means that groups,
which work within communities, are vital in delivering targeted,
in-depth support. To identify and assist households in particular
need, RWE npower operates the Health Through Warmth (HTW) scheme
in 15 geographic areas of England and Wales, in partnership with
the NHS and NEA.
(b) Health Through Warmth operates through locally
based partnerships that seek to identify vulnerable people of
any age whose health is adversely affected by cold and damp conditions
in their home. This scheme is available regardless of whether
they are an npower customer.
(c) The scheme helps tackle health inequalities
by establishing partnerships with local authorities, health trusts,
Energy Saving Trust advice centres, care & repair agencies
and other community-based organisations, to create wider awareness
of the health problems that are made worse by living in cold conditions.
(d) The partnerships created by HTW and the support
of key community workers are critical in identifying the most
vulnerable residents and effectively bringing together resources
so that practical solutions can be delivered.
(e) To date, HTW has received almost 54,000 referrals,
spent £4.7 million from the npower HTW Crisis Fund and has
leveraged more than £45.6 million in funding for vulnerable
clients to help improve their levels of warmth, comfort and quality
of life.
(f) This is achieved by facilitating the installation
of appropriate energy efficiency and heating measures. As well
as providing a suitable practical solution, the scheme also sources
appropriate funding which includes government grants, charitable
contributions and the unique npower HTW crisis fund.
(g) From February 2010, HTW is working in partnership
with the Foundations Independent Living Trust. This partnership
will enable HTW to help support more vulnerable people whose health
is made worse by cold and damp living conditions who live outside
of the existing 15 HTW areas
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