Energy Bill

Memorandum submitted by Consumer Focus (EN 17)

Consumer Focus is the statutory consumer champion for England, Wales, Scotland and (for postal consumers) Northern Ireland.

We operate across the whole of the economy, persuading businesses, public services and policy makers to put consumers at the heart of what they do. We have specific responsibilities for the energy and postal sectors. [1]

Overall, Consumer Focus welcomes the Energy Bill, but we have particular concerns about:

The disconnection of energy supply for non-payment of the Green Deal charge

The missed opportunity to strengthen and simplify consumer protections across the energy services sector, with additional support for vulnerable consumers.

The intention to make ECO the primary mechanism for tackling fuel poverty in England instead of Warm Front, reducing public scrutiny of fuel poverty policy and the targeting of fuel poverty programmes.

The plan to wait to 2018 to make it illegal to rent out the very coldest homes – two years after the statutory target for the eradication of fuel poverty.

No provision to facilitate the targeting of households in need

The lack of a link to statutory carbon and fuel poverty targets

The following sections detail our concerns on these points.

We also want to take the opportunity to welcome the provision of information on energy bills that seeks to empower consumers and enable them to lower their energy bills. However, information on bills must be in an accessible format, be likely to have a positive impact on consumer behaviour, and its impact must be monitored [2] . This is because consumers will ultimately foot the bill for this additional information from their suppliers.

Disconnection for non-payment of the Green Deal charge

1. Energy consumers often use the same energy supplier for the supply of gas or electricity and for energy services such as boiler maintenance. If the consumer fails to pay the energy services contract, the supplier is not entitled to disconnect the consumer’s gas or electricity supply. At present, suppliers can only disconnect a household for failure to pay for the charges associated with the supply of electricity/gas and the associated metering costs (eg standing charge).

2. The ability to disconnect electricity and/or gas supply for unpaid charges is governed by primary legislation:

Gas Act 1995, Schedule 2B (7)(1)

Electricity Act 1989, Schedule 6 (2)(1)

3. Disconnection for unpaid charges is regulated by Ofgem, as set out in the Gas / Electricity SLCs 27.9 to 27.11, which relate to charges for the supply of electricity and/or gas supply. Suppliers are not permitted to disconnect pensioner households or households where there are no working age adults, under the Winter Moratorium (between October and March). The Winter Moratorium also applies to households where one of the occupants is disabled or chronically sick.

4. The existing licence condition does not offer protection to households with children. Ofgem does not intend to expand the definition within the existing licence condition.

5. Clause 18 of the Energy Bill 2011 gives the Secretary of State the power to modify these licences to set circumstances in which suppliers may disconnect supply to a green deal property.

6. If suppliers are permitted to disconnect households for failure to pay the Green Deal charges, we do not believe the current self-regulatory protections for vulnerable households can be guaranteed or indeed are appropriate. In 2009 Consumer Focus had evidence that vulnerable consumers were being disconnected, and carried out a fast track review with Ofgem [1] . As a result, improvements were made to the Energy Retail Association (ERA)’s self regulatory framework ‘the safety net’ to protect vulnerable consumers from disconnection throughout the year [2] . The ‘big six’ suppliers are now audited on compliance with the Safety Net, as part of the annual audit of the ERA Billing Code.

7. However, suppliers do not yet use a common minimum definition of a vulnerable household. For example one supplier will not disconnect a household where there are children under 18, while another has only committed to not disconnecting households where there are children under five and the family is in receipt of benefits. None of the 10 small suppliers have signed up to the ERA Safety Net.

8. Consumer Focus recognises this power to disconnect may be necessary in exceptional circumstances – namely when an ‘able-to-pay’ household is refusing to pay for work that has improved the quality of their property and is saving them money on their energy bills. And, as the costs of debt management will be carried by suppliers, and therefore consumers to some extent, we want them limited. However, energy supply is an essential service, and vulnerable consumers and those suffering from poor service provision must not face disconnection. We believe the existing standard licence conditions to protect vulnerable consumers from disconnection must be strengthened and better targeted e.g. extended to cover households with young children and apply year round.

9. Protections also need to extend to address disconnections from supply of heat and power, whatever the source. Our Extra Help Unit has recently handled a case where a family with a 6 month old baby faced disconnection from a bio-mass district heating network – losing access to hot water as well as space heating. This was resolved through negotiation, there are currently no clear consumer protections.

10. Further protections for prepayment meter users are also needed. There are a number of complications associated with the handling of the Green Deal charge on prepayment meters, which pose significant risks to low income and more vulnerable households.

Repayments of the Green Deal charge cannot be calculated in accordance with the customer’s ability to pay, as they are under the terms of the supplier’s licence for other energy arrears. If a customer cannot afford the Green Deal charge (as opposed to the arrears) this could lead to self-disconnection.

The technological limitations associated with existing prepayment meters only allow for any arrears, caused by failing to top up frequently enough or use of the emergency credit facility, to be taken off as a lump sum when the next amount of credit is added to the prepayment meter.

Relies on the supplier’s billing system to identify what is ‘debt’ and what is the ‘Green Deal charge.’

- This will be particularly important for the change of supplier process to ensure the customer isn’t inappropriately debt blocked because the supplier mistook the Green Deal charge as a debt.

- Will also add complexity to the change of tenancy process.

The additional complexity of managing debt payments may result in supplier errors impacting on the consumer e.g. if the various payments are not set up properly in the supplier’s billing system. 

Relies on suppliers’ monitoring payments and periods where Green Deal payments aren’t being made (e.g. when the customer is away, potentially due to a long hospital stay).  There is a risk of supplier errors impacting customers.

Consumer Focus’s Cutting Down, Cutting Back, Cutting Off research [3] highlights that households using prepayment meters are more likely to have low incomes, in receipt of some form of means tested benefit and have someone suffering from a long term physical or mental health condition or a disability.

11. We recognise that the Green Deal should save consumers money on their energy bills and want the energy company obligation to focus its help on low income consumers, so that instances of Green Deal arrears are limited. We also recognise finance providers will need to know Green Deal agreements are at low risk, in order to offer a low interest rate; but risks do not disappear once removed from the finance provider. We think that the following consumers could be particularly vulnerable at this historic change to consumer protections, and their needs must be addressed if energy supply licences are modified:

Consumers of pensionable age, disabled, with chronic illnesses and households with children aged 16 and under

Consumers who cannot pay the Green Deal charge due to other, priority debts and charges

Consumer has bought or rented a property for which the Green Deal charge was not disclosed or (in the case of tenants) consented to

Consumer is in legitimate dispute with the Green Deal provider over a complex problem e.g. crossed meters, inaccurate bills, supply related questions and other issues related to the installation of Green Deal measures.

12. Vulnerable consumers often struggle with pursuing complaints against energy suppliers and are more at risk in many ways. It is important that extra protections for these consumers are in place, particularly if consumers can be disconnected from energy supply for non payment of the Green Deal charges. At present Consumer Focus has a statutory duty under the Consumers, Estate Agents and Redress Act 2007 to provide advice and represent vulnerable consumers who face disconnection from energy and gas supplies or any vulnerable designated consumers who are unable to resolve their complaints directly [4] . Consumer Focus handled 5,300 such cases in 2010-11. It is not clear which organisation will have this duty when we close in April 2013, but we want these functions to continue in some form and to include the duty to handle complaints for disconnection of energy and gas supplies for non-payment of the Green Deal charge and for any vulnerable designated consumer who is unable to resolve their complaint directly.

Redress

13. The forthcoming consultation from the Department of Business Innovation and Skills (BIS) on changes to the consumer landscape offers an opportunity to rationalize the current redress arrangements for energy consumers.

14. We recommend that the Government recognises the convergence of the energy supply, efficiency and microgeneration markets and brings together the handling of enquiries and complaints for energy supply and services as part of a streamlined redress and enforcement framework for energy services consumers.

15. Streamlining should enhance not erode consumer protections: where protections are already available to consumers in the supply market, including specialist complaint handling services for vulnerable consumers, these must be extended to cover consumers taking up smart meters, the Green Deal, microgeneration and other emerging energy services.

16. Furthermore, it is essential that the learning throughout any redress process is captured and acted upon in an appropriate way on an independent, industry-wide basis to ensure the best possible outcome for consumers. This will require an agreed format for data collection and reporting, and legislation requiring data sharing where it is in the consumers’ interest. Lack of provision for data sharing in the energy market is currently restricting analysis of complaints in both the energy supply and microgeneration markets.

Energy Company Obligation

17. The current CERT and CESP programmes are estimated to provide £1.3bn and 0.35bn respectively of funding for energy efficiency measures each year. CERT alone funds the installation of about 3.2m major measures in consumers’ homes each year [1] .

18. However, the scale of the challenge is considerable, particularly with respect to hard to treat homes. In England alone, there are 6.6m homes built with solid walls, 2.8m homes off the gas network, 1.5m homes with no loft space and 0.3m high rise flats [2] .

19. The Government currently estimates the average cost of external wall insulation at £13k and air source heat pumps at £6k. This compares to an average cost of £450 for cavity wall insulation and £2.7k for a new gas condensing boiler [3] . Thus, assuming similar levels of spend for ECO as currently available under CERT, a much smaller number of homes will receive help under ECO, even taking into account financial contributions from outside the ECO mechanism.

20. There are 11.2m households in the CERT Priority Group, 5.6m households in the Super Priority Group, 5m households in fuel poverty and 4.5m tenants in the social housing sector in Britain [4] .

21. The Government intends to stop funding Warm Front in 2013. This provides grants for insulation and heating measures to private sector low income households in England. The Welsh and Scottish Governments intend to continue their equivalent publicly funded programmes after 2013 (see separate Consumer Focus briefing on fuel poverty).

22. The insulation industry has expressed concern about the proposed withdrawal of supplier obligation subsidy for loft and cavity wall insulation (currently provided by CERT). The Government intends for the Green Deal finance mechanism alone to fund these measures for able to pay households after 2012.

23. Consumer Focus is therefore concerned about the high level of potentially competing demands on ECO resources. These include:

the large numbers of consumers in need,

the extensive problem of hard to treat homes in Britain and the substantial costs involved in improving such homes to a reasonable standard,

the funding required for a replacement to the Decent Homes programme for social housing [5] , and

the insulation industry’s contention that ECO subsidy is still required, at least during a transition period, for loft and cavity wall insulation for able to pay households.

24. Consumer Focus urges the Government to identify supplementary sources of funding to ECO for energy efficiency measures. Given that energy consumers will pay for the carbon floor price and increased ETS via increased fuel bills, there is a strong case for compensating consumers by providing funding for energy efficiency measures.

25. The current level of subsidy required from ECO to make the Green Deal finance mechanism viable for certain measures, e.g. SWI, is considerable. The example quoted by DECC is that Green Deal finance would provide £5k and ECO £5k towards a typical SWI job (although £10k is lower than the estimated £13k quoted in the CERT extension impact assessment).

26. Consumer Focus is concerned that under DECC’s proposals, all energy consumers will pay for a large amount of subsidy to go to a small number of consumers who are likely to be reasonably well off (since only these consumers are likely to take advantage of the Green Deal finance mechanism). We accept that these consumers have not benefitted substantially to date from the CERT mechanism. The alternative proposal we are developing would allow ECO subsidy to be offered to these consumers at a later date once the cost of SWI has come down in price.

27. The interaction between the ECO, Green Deal finance mechanism, social housing programmes, public grants, FIT and RHI will need addressing if consumers are to benefit from ‘whole house’ improvement packages – a policy advocated by many organisations including Consumer Focus.

28. The interaction between the ECO and Devolved Government fuel poverty programmes will need addressing.

29. The intention to make ECO the primary mechanism for tackling fuel poverty in England instead of Warm Front, reduces public scrutiny of fuel poverty policy and the targeting of fuel poverty programmes. It also represents a dramatic shift away from the current emphasis of the supplier obligation on ‘low hanging fruit’ energy efficiency measures and ‘easy to reach’ consumers.

Private rented sector

30. In late 2010, Consumer Focus undertook an impact assessment of the minimum standards proposal [1] . In addition to satisfying ourselves of the affordability of the proposal, we found that a minimum EPC band E standard would take 150,000 private rented households out of fuel poverty (25 per cent of all private rented households currently living in fuel poverty). A minimum EPC band D standard would take 302,000 private rented households out of fuel poverty (50 per cent)

31. Consumer Focus therefore supports the Government’s proposal to make it illegal for landlords to refuse reasonable energy efficiency requests from their tenants and that the rental of the very coldest properties will be banned through a minimum energy efficiency standard.

32. However, we remain convinced that minimum energy efficiency standard must come in to force in 2016. At present the Government does not plan to make it illegal to rent out the very coldest homes until 2018 – two years after the statutory target for the eradication of fuel poverty. And tenants who make energy efficiency requests of their landlords under the provisions contained in the Bill must be protected from eviction as this is a significant barrier both to consumer action and to the work of Environmental Health Officers [2] , [3] .

Data Matching

33. Data matching for those in receipt of Pension Credit is permitted under powers in the Pension Act 2008 [1] .

34. An Energy Rebate Scheme in 2010 used data matching to provide a one-off electricity bill rebate of £80 to those aged 70 or over in receipt of the Guarantee element of Pension Credit. It was run by the Department for Work and Pensions (DWP), Department of Energy and Climate Change (DECC), and the six major domestic energy suppliers.

35. A recent evaluation of this data matching by the Department for Work and Pensions found the scheme was seen "extremely positively" by recipients. Consumers in receipt of the rebate were supportive of their data being matched because it was for a specific purpose and there was clear recognition of the trade-off between a possible privacy risk and the benefit of the rebate. [2]

36. There are clearly issues of concern around privacy and data protection, but allowing data matching powers beyond the limitations of the Pension Act 2008 would allow fuel poverty and energy efficiency programmes to be better targeted at a wider range of priority consumers including those eligible for:

Energy efficiency measures under CERT or the ECO

The Warm Home Discount

An Extra Help Scheme during the smart meter roll-out

Not only would data matching allow energy companies to target help to consumers in greatest need, it would also reduce considerably the wasteful administration costs faced in identifying these consumers. The industry claims these costs can be in the region of £120 per household; these resources would be much better spent on providing help to low-income and vulnerable consumers.

37. Current powers to match data (under the Pensions Act 2008) only apply to those in receipt of Pension Credit. The Energy Bill could extend those powers to other priority groups, particularly those households prioritised under the energy company obligation to achieve affordable warmth.

Warmer Homes

38. Our recent research Access for All [1] found that if it achieves all it sets out to, the Green Deal could reduce the average energy bill by up to £350 a year (at current prices), and deliver the CO2 emissions targets needed. But the challenges are substantial. Lessons from overseas, summarised in Green Deal or No Deal [2] , show that no single energy efficiency programme has achieved the cuts on carbon emissions or fuel poverty that the UK Government must deliver. 

39. Consumer Focus therefore supports the Warm Homes amendment to the Energy Bill that would give Britain’s energy efficiency programmes a clear purpose and direction.

June 2011


[1] For further information on our role and duties, see http://consumerfocus.org.uk/g/4p4

[2] Consumer Focus (2011) Missing the Mark, http://consumerfocus.org.uk/g/4pc

[1] http://bit.ly/fRADvf

[2] http://bit.ly/fExh6s

[3] http://www.consumerfocus.org.uk/files/2010/10/Cutting-back-cutting-down-cutting-off.pdf

[4] Consumers, Estate Agents and Redress Act 2007, C.17, Part 1, Clause 12 and 13

[1] DECC (2010), Extending the Carbon Emissions Reduction Target to 2012 Impact Assessment

[2] BRE (2008), A study of hard to treat homes using the English House Conditions Survey

[3] DECC (2010), as above

[4] DECC (2010), Extending the Carbon Emissions Reduction Target to 2012 Impact Assessment; DECC (2010), Annual report on fuel poverty statistics (projection for fuel poverty in 2010 for England scaled up to Britain); Consumer Focus analysis of England, Scotland and Wales house condition surveys

[5] 95 per cent of social housing was improved to the Decent Homes Standard (in most cases well beyond the standard) by 2010. A small residual programme will continue until 2013 to improve the remaining 5 per cent. The previous Government proposed that all social housing should be improved to an EPC C standard by 2020, with ECO providing substantial funding towards this.

[1] Consumer Focus (2010) A private green deal, http://consumerfocus.org.uk/g/4o4

[2] Crosby, Formby and District CAB The tenant’s dilemma by Debbie Crew 2007

[3] Pg 9 Ibid

[1] http://www.legislation.gov.uk/ukpga/2008/30/section/142

[2] http://www.dwp.gov.uk/docs/energy-rebate-scheme-evaluation.pdf March 2011

[1] Consumer Focus (2011) Access for All, http://consumerfocus.org.uk/g/4nz

[2] Consumer Focus (2011) Green Deal or No Deal, http://consumerfocus.org.uk/g/4ny

Prepared 9th June 2011