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 - i.e., 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 200bn. 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 i.e. 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 5 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 100m in 2008-9, 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 300mn 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 1 in 3 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 & 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

 

Social Tariff spend

British Gas spent 77.4 million on social tariffs in 2008-09. In addition 3.3m was donated to the British Gas Trust Fund and 1m spent on charitable partnerships. In total therefore British Gas contributed 82m 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 60m and 65m.

Actual social spend vs agreed social spend under the 2008-2011 voluntary agreement

 

2008/09

2009/10

2010/11

Industry agreement

100m

125m

150m

British Gas share

34m

42m

49m

British Gas actual spend

82m

65m (est.)

TBD

As the above table shows, British Gas agreed to spend 34m 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 42m and 49m respectively. Total estimated British Gas spend between 2008 and 2011 will be c. 200m, 33% higher our agreed spend of 150m. These figures do not take into account the additional 70m 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 & 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.