Energy Bill

Memorandum submitted by Ecotricity (EN 08)

Introduction & Background

As a small supplier of both electricity and gas, Ecotricity welcomes the opportunity to comment on the Energy Bill . Ecotricity own and operate several onshore wind farms throughout the UK, providing renew able energy to our customers. We are a B ritish green energy company which has be en established for 15 years. We are a non-dividend company which means all the profits remain within the UK and are re-invested in building renewable generation .

The comments we have provided here relate to the sections of the Energy Bill to which we have relevant knowledge and special interest. This includes particularly those sections which may inhibit the growth of Small Suppliers. Ecotricity have been lobbying to amend the level of the supplier environmental and social obliga tion thresholds we will reach when we supply 50,000 domestic customer s . We acknowledge the 250,000 customer accounts level set recently for the Warm Home Discount (WHD) scheme. However, we are still a waiting developments on whether there will be any changes to the level of other environmental and social obligations. Ecotricity feel that the current obligations are disproportionate, arbitrary and act as a barrier to a competitive market. The existing licence obligations restrict competition and thus affect the affordability of energy. These also inhibit the UK ability to satisfy the National Energy Policy T rilemma; security of supply; a low carbon environment; and affordability for customers. Ecotricity and other small suppliers play a critical role in realising these three aspects. Ecotricity would also like to highlight that no other small supplier has ever breached the 50,000 barrier and that in itself is poignant. 

Summary

Ecotricity firmly believe there should be no obligation on suppliers to make any Green Deal repayments before a customer’s entire energy debt has been received. We also strongly support an option for small suppliers to opt-out of the Green Deal . In addition we believe that not all energy suppliers will be required to participate in the Energy Company Obligation (ECO) . Furthermore, w e would like to suggest that the ECO scheme could be the perfect opportunity to introduce a tapered approach to participation.

Ecotricity feel all administration costs including database requirements should not be borne by suppliers. Suppliers should be able to recover the costs from those benefiting from the scheme, such as Green Deal: Financiers, Providers or customers. Ecotricity are also concerned by the workability of the estimation of energy bill savings as they have the potential to miss lead Green Deal customers. We would like robust modelling to be completed on the estimated energy bill savings, using a wide variety of installed measures and building types.

Providing additional information on energy bills should be possible by suppliers on a voluntary basis. However, w e do not believe suppliers should be mandated to provid e this information. We believe this additional information will confuse consumers and generate increased dissatisfaction. To provide comparisons to customers which are like for like is extremely difficult and therefore we would be detailing averages which are inaccurate. We would like to suggest this type of information is provided elsewhere, such as a national advertisement campaign.

Furthermore, w e would like to stress that although we agree with the proposed special administration measure we think it should be implemented across both big and small suppliers.   This pro posal will act as a backstop to the supplier of last resort process which means in reality it will only apply to the Big 6 due to their size.  We believe this is unfairly disadvantaging sma ll suppliers.  Additionally d ue to the nature and structure of small suppliers, if they were given the same benefit the Special Administration Regime would offer it would provide them with the time and opportunity to stave off full liquidation.

Energy Bill Part One

Green Deal

1. Ecotricity would like to comment on the potential debt liability to suppliers under the Green Deal. We firmly believe there should be no obligation on suppliers to make any Green Deal repayments before a customer’s entire energy debt has been received. Suppliers should not carry any Green Deal debt risk. This could be extremely detrimental to the cash-flow of small suppliers.

2. As discussed above we are wary of the obligations which will be placed upon us when we reach the 50,000 customer threshold. Therefore, we would strongly support an option for small suppliers to opt-out of the Green Deal which is mentioned in clause 17(3)(a). We support the option of voluntary participation for small suppliers. However, the criteria of whether a supplier is a mandated Green Deal supplier needs to be defined sufficiently to ensure only those who can afford to participate are mandated to. There is also a need to ensure that those suppliers who choose not to participate, are not cut-off from a large portion of the market and become uncompetitive.

3. Ecotricity believe all administration costs including database requirements should not be borne by suppliers. Suppliers should be able to recover the costs from those benefiting from the scheme, such as Green Deal: Financiers, Providers or customers. The Green Deal will require significant internal and external supplier system changes, which will be costly and lengthy to administer. We are also concerned by the added complexity the Green Deal will cause to existing supplier processes such as change of tenancy and change of supplier.

4. Ecotricity is also concerned by the workability of the estimation of energy bill savings as discussed under clause 8(4). Estimated energy bill savings will be very difficult to define. We would like robust modelling to be completed on the estimated energy bill savings, using a wide variety of installed measures and building types. This modelling needs to be published for review among all participants including Green Deal: suppliers, providers, installers and financiers. However, even with robust modelling all estimated savings should be provided to customers with clear caveats that they are only estimates. We are concerned customers could believe they are miss-sold measures if they do not experience a reduction in their energy usage as per their provided estimation. Customers could be extremely dissatisfied if their energy consumption in fact increases after a Green Deal measure is installed due to their behavioural changes. It is important Green Deal customers receive sufficient behavioural advice.

5. We are aware that the Government has decided for the Green Deal charge to sit on the Green Deal customer’s electricity bill. Whilst we appreciate that by choosing electricity offers simplicity and lowers costs for the scheme. We are concerned customers will not see a reduction in their electricity bill but their gas bill and that this will lead to customer dissatisfaction. We are also concerned by the workability of applying the Green Deal charge to a customer bill when a customer has different electricity and gas suppliers.

Energy Company Obligation (ECO)

6. We support clause 64(6)(a) that n ot all energy companies will be o bligated to participate in the ECO . As discussed above we are wary of the obligations which will be placed upon us when we reach the 50,000 customer threshold. We believe there is a clear rationale that small suppliers incur larger costs to comply under social programmes compared to larger suppliers. It is clear that a threshold needs to be set at the level where suppliers can leverage some economies of scale to enable them to cope with the increased costs they will have to incur without providing significant impact on the consumer through increased prices.

7. We would also like to suggest that the ECO scheme could be the perfect opportunity to introduce a tapered approach to participation. The tapered obligation could operate between 25 0,000 and 1,000,000 accounts. Tapering will prevent a ‘cliff edge scenario’ and make growing through obligation threshold s less daunting and more achievable to suppliers.

8. We would like to see more discussion on how the ECO will interact with the WHD . It is likely ECO eligible cu stomers will also be receiving WHD rebates and p ossibly winter fuel payments . Therefore, Ecotricity would like to suggest that these schemes for vulnerable customers are more united in their approach .

Widening Access to Energy Performance Certificates

9. Ecotricity supports the widening of Energy Performance Certificates. We believe enhanced understanding and reporting on the energy efficiency of domestic and non-domestic buildings in the UK has the potential to improve their energy efficiency and thereby reduce carbon emissions.

Making Information Clearer on Bills

10. Ecotricity are in support of suppliers being able to provide this information on a voluntary basis. We do not believe suppliers should be mandated to provide this information for the reasons below.

11. All energy companies have been focussed on reducing the complexity of their energy bills, to make bills simpler and more succinct for consumers. This additional information we believe will confuse consumers and generate increased dissatisfaction.

12. Consumer groups1 have stated clearly that they do not want this sort of information on their bills and that the bill should be just a means of notification of consumption and energy cost.

13. Whilst we agree that there are benefits in this initiative, we do not feel that the consumers’ energy bill should be the vessel for this information. Trust in energy companies is a claimed issue from consumer groups¹; therefore we do not believe energy bills are the right place to provide consumers with this information.

¹ Focus Groups conducted by Consumer Focus

14. Providing customers with the lowest tariff information may not be comparable to the tariff they have chosen for example the lowest tariffs usually relate to consumers utilising an on line product and paying by direct debit. Most consumers will have been offered these tariffs already and actively not chosen them so to continue to remind customers will potentially further dissatisfy consumers.

15. Consumption comparisons are difficult to calculate in practice. It is unlikely to be possible to compare like for like and therefore we would be detailing averages which are inaccurate.

16. Ecotricity believe there is a need to promote the availability of information and make customers aware of where they can obtain more meaningful data if it is something they are interested in.

17. We are also concerned by the cost of implementing these changes as it would involve a complete redesign of our energy bill. It will also require significant system developments to capture information for the tariff comparisons.

18. Ecotricity does not have an incumbent customer base and therefore do not have "sticky" customers. Therefore we do not believe this is the right place to reach these types of customers. We would like to suggest this type of information is provided elsewhere, such as a national advertisement campaign.

Energy Bill: Part Two

Electricity Supply

19. We support the assessment of future capacity by Ofgem detailed in clause 77. However, we are concerned this work could be repeating the assessments already undertaken within the Electricity Market Reform and by the National Grid for their National Electricity Transmission System Seven Year Statement. We also believe similar reports have already been completed by commercial organisations such as Pöyry.

Gas Supply

20. We do believe Ofgem should be granted the powers to review the current gas emergency arrangements, as detailed in clause 79. We believe the mechanisms already in place provide a robust and thorough assessment of the security of gas supply in Great Britain. We feel Ofgem should not be granted the powers and the current mechanism of a National Grid code modification proposal should be followed.

Special Administration

21. We understand that there is a clear need and requirement for the introduction of a special administration regime and agree that the measure is required in order to offer protection to both the customer and other suppliers.    We understand and are grateful that the measure would provide smaller suppliers protection from the effect of a B ig 6 player becoming insolvent and the major disruption it would cause to the markets. 

22. However, we would like to stress that although we agree with the proposed measure we think it should be implemented across both big and small suppliers.  As we understand the proposal is for this to act as a backstop to the supplier of last resort process which means in rea lity it will only apply to the B ig 6 due to their size.  We believe this is unfairly disadvantaging small suppliers.  We believe that due to the nature and structure of small suppliers, that if they were given the same benefit the Special Administration Regime would offer it would provide them with the time and opportunity to stave off full liquidation.

Conclusion

The main reservation we have on the Green Deal scheme is regarding debt liability. W e firmly believe there should be no obligation on suppliers to make any Green Deal repayments before a customer’s entire energy debt has been received. We also feel all administration costs including database requirements should not be borne by suppliers.

Ecotricity are in support of suppliers being able to provide additional information on energy bills on a voluntary basis. However, we do not believe suppliers should be mandated to provide this information for multiple reasons . Furthermore, w e would like to stress that although we agree with the proposed special administration measure we think it should be implemented across both big and small suppliers.  

Ecotricity would also like to take this opportunity to bring to your attention that we have been lobbying to amend the level of the supplier environmental and social obligation thresholds we will reach when we supply 50,000 domestic customers. Therefore, we also strongly support an option for small suppliers to opt-out of the Green Deal and for small suppliers not to be required to participate in ECO. However, we would like to suggest that ECO could be the perfect opportunity to introduce a tapered approach to participation.

June 2011

Prepared 8th June 2011