Energy Bill

Memorandum submitted by Ovo Energy (EN 40)

1. Ovo Energy is one of the newest entrants to the UK energy supply market, supplying gas and electricity to both domestic and commercial properties throughout the UK. Ovo entered the market in September 2009 and has grown considerably since this time, accruing almost 50,000 domestic customers throughout the UK. Our focus is specifically around simplicity and transparency in all of our operations; making the energy industry easier for consumers to understand.

2. As a smaller supplier, and a new and fast-growing entrant to the market, we feel we have a unique perspective on the industry and we welcome the opportunity to consult on the proposed amendments to the Energy Bill. We have some concerns around the bill in its current form and have suggested some amendments for consideration below.

3. Competition within the energy industry

The recent Retail Market Review from Ofgem and supporting work from DECC underlines a clear ambition to increase competition within the energy supply market. Creating a competitive market place is essential for increasing consumer choice; it will encourage innovation and drive forward changes that work in the best interests of the consumer. We believe that any propositions should work to allow competition to thrive, in order to ensure that the consumer is always receiving the fairest deal.

4. The Green Deal

We believe this to be a very good idea in principle and we welcome the Government’s leadership on energy efficiency. The implementation of a scheme that allows consumers to increase energy efficiency without having to pay upfront for it will:

· Decrease costs associated with energy supplies

· Increase overall energy security; initiatives that reduce the overall consumption of energy will always work in favour of energy security by simply reducing demand

· Decrease environmental impacts

This scheme is a positive step forward in working to engage consumers with energy efficiency and should help to encourage a generation to become more energy conscious.

5. We believe however that in its current state the Green Deal will work in contradiction to a competitive market place and feel that the government have neglected to consider the potential negative outcomes for suppliers. In its current format this scheme will create unnecessary complexity and cost. The key issues relate to:

· The administrative burden placed on suppliers; if suppliers are required to administer loans to what could potentially be thousands of different financiers they will require resources to do so. This administrative burden will not only act as a barrier to entry but could also act as a barrier to growth for smaller suppliers

· The financial burden placed upon all suppliers; financiers transfer all financial liability onto energy suppliers, yet they stand to benefit most from the scheme. Whilst we understand that this aspect has been suggested in order to encourage more financiers to provide Green Deal arrangements, we do not feel that energy suppliers should be so financially disadvantaged by the scheme. It is true that larger energy suppliers should be able to smooth any bad-debt that occurs through this initiative by simply subsidising it against their highly profitable inert customer bases, but smaller suppliers and new entrants are unable to do so. Bad debts relating to the Green Deal assumed by the smaller supplier could prove to be a significant financial burden.

· Increased complexity around change of tenancy and change of supplier processes; currently some of the most complex areas of energy supply relate to change of supplier and change of tenancy– both of which will increase in complexity under the proposed scheme. We have concerns around the current proposals relating specifically to the collection of Green Deal debt, tenant/landlord liability and vacant properties, and the ease of switching suppliers.

6. Financial and administrative obligations for energy suppliers fall disproportionately on new entrants. When the government considers energy suppliers they appear to only consider implications for the ‘Big 6; (British Gas, Scottish Power, Scottish and Southern Energy, npower, E.ON and EDF). It is important to remember that not all suppliers within the industry have the same access to resources or economies of scale.

7. If the government is serious about increasing competition in the sector and in particular in creating a market place attractive to new entrants it must bear in mind that "energy suppliers" include small and privately owned businesses that drive innovation and customer choice in the market.

8. Our suggestions: A centralised administration organisation

This initiative would be better run by one central agency that can administer the loans, contract installers and subsequently request payments from energy suppliers. The Green Deal could work in a similar way to the FITs scheme, where all data is stored centrally and customers can be passed from supplier to supplier somewhat seamlessly. We appreciate that there will still be some administration required to ensure that payments are collected and sent back to the central agency, but suppliers will be dealing with one body instead of what could potentially be thousands. This mechanism will also negate any requirement for energy suppliers to take on financial liability for the scheme.

9. If a single agency is not created, we would suggest that the Distribution Network Operators (DNOs) could form a regional network to take payments and administer this scheme. The DNO could aggregate a charge based on the number of the supplier’s customers who have a Green Deal within that network; an aggregated charge would be taken on a monthly basis and subsequently paid back to either a central agency, or directly to the financiers. As DNO’s are regulated companies.

10. The aggregation of administration, finance and accreditation under one organisation or via the DNO’s (regional monopolies) would reduce costs to both consumers and suppliers, lead to economies of scale in procurement and simplify and accelerate the rollout process.

11. Smart Metering

Consumer protection must be paramount when rolling out smart meters to UK households. Ultimately, the sole aim of the visit to a customer’s property is to install a smart meter(s), but there is a danger that this could be viewed as an opportunity to cross-sell branded goods or policies to consumers.  Consumers (especially the most vulnerable in society) need to be protected from incentive based selling by installers, where opportunities will be presented to the customer to promote other services and goods.

12. The smart metering roll-out offers the opportunity to capture the customer’s attention from the date of installation and should be seized upon and used to provide information to drive a change in consumer behaviour. 

13. Opinions are being presented to support installers being allowed to provide information relating to products and services that are not related to smart. Given suppliers performance in Direct Sales activities over the last 13 years it is imperative that any form of sales activity is expressly prohibited under the codes of practice. Consumers already have very low levels of trust in energy companies. If sales activities are permitted during an installation process the risk of abuse by suppliers is too high

14. We would therefore suggest that there should be a Government mandate to produce and promote the literature on the benefits of smart metering and how customers should use their consumption data to affect change and make savings.  This then ensures that there’s a consistent and coherent message to consumers, with all the benefits clearly stated within this independent booklet. 

15. Energy Company Obligation (ECO)

Ovo expects the threshold for ECO to remain at 250,000 (following on from DECC’s recent consultation on the CERT and CESP schemes) and suggest that a taper should be incorporated. Tapering the commitment for suppliers once they meet and exceed the threshold will allow them to still remain competitive and will not act as barrier to growth. We would like to achieve greater clarity around this point.

16. Summary

The Green Deal - In summary we suggest that in its current form the Green Deal will work in contradiction to the ideal of greater competition within the energy supply market. Ovo questions whether energy suppliers are best placed to administer the Green Deal as the implications of bad-debt and the administrative burden for new entrants and smaller suppliers could act as a barrier to both entry and subsequent growth. Furthermore the change of tenancy and change of supplier processes will only be further complicated by this initiative if they are managed by suppliers. We suggest instead that the scheme would be better administered by one central agency which could collect investment, appoint installers and subsequently request payment from energy suppliers. Managing payments with one agent will reduce the administrative burden and will limit any financial liability for suppliers.

17. Smart Metering - Energy suppliers should not be allowed to ‘cross-sell’ when installing Smart Meters. We believe that the installation of Smart Meters is the first step in increased energy efficiency and could act as a way in which to encourage the implementation of more measures within the individual’s home. Many individuals may not be aware of the services and opportunities on offer and so we believe that it would be a negative move for the government not to take advantage of this. Our suggestion is that a standard consultation document is produced centrally by DECC which will act as an advice service for customers.

18. ECO

Ovo expects the threshold for ECO to remain at 250,000 customers, and would ask that a taper is considered and implemented. This taper will work to reduce barriers to growth upon meeting and exceeding the threshold.

19. Additional Questions

If a tenant is to assume payments for the property when in residence, Ovo presume that the Green Deal repayments move back to the Landlord once the property is vacant. Will the landlord therefore underwrite the Green Deal in this instance (i.e. if a tenant neglects to pay the Green Deal charges, will the landlord then be liable for all financial charges on the property). We believe that there needs to be greater clarity around this point.

June 2011

Prepared 22nd June 2011