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 (e.g. 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 6.33billion 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 (e.g. 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 (e.g. 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 i.e. 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 subsidizing 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:

aged over 60

disabled

suffers from a chronic illness

a child under 16

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