Energy Bill [Lords]

Memorandum submitted by the Industrial and Commercial Shippers and Suppliers (ICoSS ) (EN 20)

Summary

1. ICoSS has concerns that, in the future, the Secretary of State can oblige full payment to green deal finance providers of any outstanding debt, as contained within Clause 17 (3)(c). This could result in suppliers being required to make Green Deal payments which are due, but which have not been made by the customer and therefore this potential debt being treated as a future liability on suppliers. This may oblige energy suppliers to increase their credit requirements from consumers, so deterring take-up of the Green Deal. This clause needs to be removed in order to avoid these negative effects.

ICoSS

2. The Industrial and Commercial Shippers and Suppliers (ICoSS) group represents all the major non-domestic industrial and commercial (I&C) suppliers in the GB energy market, supplying 70% of the gas needs of the I&C sector. A number of our members also supply electricity to their customers and are therefore affected by the proposals to include Green Deal payments on their customer bills. A full list of ICoSS members is attached in appendix 1. The scope of this submission is therefore limited to matters relating to the non-domestic energy supply market.

Credit Checking

3. In line with standard commercial practices in other market areas, I&C energy suppliers may elect to determine a non-domestic consumer’s credit-worthiness prior to agreeing an energy supply contract. As a result of this process, the energy supplier may in certain circumstances require the end consumer to lodge a deposit as a condition of supply, or the energy supplier may refuse to enter into a supply agreement altogether. This is different to the domestic sector, where supply may not be refused (though deposits may still be required).

4. Any valuation of a non-domestic customers’ credit-worthiness will attempt to determine the risk of any debt that customer currently holds. The level of risk assigned to any debt will depend on its size, the level of likelihood that the debt will not be serviced and the implications for the customer and energy supplier if that debt is not fully recovered.

Treatment of Green Deal Debt

5. Irrespective of how Green Deal debt liabilities are treated, they will be included as part of the overall indebtedness against which a customer will be credit checked. How that debt is treated is critical to the impact it will have on an organisation’s credit-worthiness.

6. It is our understanding that at the start of the Green Deal scheme, Green Deal debt will be pari passu, which we take to mean that Green Deal debt will be not be given priority over any other element of an energy suppliers’ charges and so suppliers will only be required to pay the Green Peal provider in proportion to any debt recovered. The bill currently allows for this under Clause 17(3)(A). For the avoidance of doubt, an example of how I&C suppliers expect this to work in practice is given in Figure 1.

7. There is however provision in the bill, contained within Clause 17 (3)(c) for the Secretary of State to change how Green Deal debt is treated, from pari passu, to full liability resting with the supplier. An example of the implications of this are set out in figure 2 below. When taking into account the longevity of Green Deal schemes, the ability to assign priority to Green Deal provider debt at relatively short notice increases the risk profile of the Green Deal scheme, so requiring Green Deal debt to be treated differently to other customer liabilities.

Implications

Suppliers

8. The possibility of being assigned full financial liability for any Green Deal debt will need to be accounted for on energy suppliers’ balance sheets as a potential future liability. This will result in several adverse effects, notably suppliers’ credit ratings and subsequent ability to raise finance for future Suppliers’ cost to serve will increase, potentially increasing energy supply prices.

9. Suppliers will be deterred from participating in the Green Deal scheme and will avoid supplying sites that have Green Deal debt. This will restrict the choices for Green Deal customers and potentially limit the scheme’s take-up in the non-domestic sector, which accounts for 1.8 million properties. [1]

Customers

10. Clause 17(3)(c) will result in customers with a Green Deal debt having a greater risk profile for energy suppliers, than if they had an equivalent debt outside of the Green Deal scheme. This may negatively impact their ability to contract with the energy supplier so increasing the likelihood that the customer will be required to lodge security deposits or be refused supply. This may limit the customer’s ability to fully participate in the competitive market.

Resolution of Issue

11. The provisions in Clause 17(3)(A) is a welcome amendment to the bill and is consistent with the Government’s published position, that Green Deal debt should be treated on a proportional basis. Clause 17(3)(c) is inconsistent with this and should be removed.

Appendix 1: ICoSS Members

· Corona Energy

· ENI UK

· Gazprom Marketing & Trading – Retail

· GDF Suez Energy UK

· Shell Gas Direct

· Statoil UK

· Total Gas & Power Ltd

· Wingas UK (membership pending)

· First Utility (associate)

June 2011