Energy Bill

Memorandum submitted by EDF Energy (EN 41)

Introduction

1. EDF Energy is one of the UK’s largest energy companies with activities throughout the energy chain. Our interests include nuclear, renewables, coal and gas-fired electricity generation, combined heat and power and energy supply to end users. We have over five million electricity and gas customer accounts in the UK, including both residential and business users.

2. The Energy Bill sets out the framework for policy on energy efficiency through the Green Deal and the new Energy Company Obligation and also seeks to address a number of other legislative improvements to enable secure, low carbon energy supplies, and to strengthen provisions on nuclear waste and decommissioning.

3. The Green Deal aims to change radically the UK’s approach to energy efficiency and to bring in new market participants, for both the financing and delivery of such measures to a greater number of households. The Bill also outlines the framework for a new Energy Company Obligation, which will build on the work carried out through CERT and CESP. We anticipate that the Bill will also determine the milestones for the Smart Meter roll-out, which will be a key focus for energy companies in the years ahead.

4. EDF Energy supports the Government’s ambitions for the Green Deal and we are working with Government and Industry to ensure the development of an effective framework for delivery.

5. Improving energy efficiency and reducing customers’ carbon emissions are an important part of building a low carbon economy. Through programmes such as CERT and CESP for the domestic sector, other services for businesses and our wider energy services activity, EDF Energy already has considerable experience of helping customers to use less energy and to reduce both carbon emissions and fuel costs.

Key points

6. Consumers should have confidence in the Green Deal, both in terms of the Golden Rule principle that payback costs will be covered by savings on the energy bill, and that there will be robust standards in place for measures, delivered by accredited providers, and processes for advice and redress.

7. The Green Deal should be designed to attract capital from financial markets, from a broad range of investors. There need to be appropriate structures in place for companies who are providing the finance also to manage the risks of, and maintain responsibility for, securing debt repayments. Neither energy suppliers nor consumers should bear these debt default risks: the need to recover these from customers would require an additional levy on energy bills.

8. Any indirect liabilities on energy suppliers’ balance sheets that could arise from the manner in which the Green Deal is implemented could have a detrimental impact on their ability to secure the significant investment that companies will make in the infrastructure required to deliver a low carbon economy.

9. Energy suppliers will play their part by collecting repayments from consumers to pass on to finance providers. In the interests of consumers, as not all will be taking up a Green Deal offering, suppliers should be specifically recompensed for the administrative services provided and not be required to socialise these costs across all customers.

10. The Energy Company Obligation should be designed so that the right balance is achieved between providing targeted assistance to vulnerable customers, and higher cost measures such as solid wall insulation to supplement and kick-start the Green Deal.

11. The Smart Metering roll-out must place the customer at the heart of the programme; ensuring safety standards and minimising cost to deliver an optimal and long-term solution for the consumer and industry, with a foundation phase for testing before the roll-out begins in 2014. The set up of the central data management system (DCC) is vital for the successful deployment of Smart Meters, particularly to enable the market testing period to commence.

12. The Energy Bill includes provisions for energy suppliers to be mandated to add more information for consumers on their energy bills, including comparative information on consumption. EDF Energy is committed to providing clear information on our bills. We are working with the Energy Retail Association and industry to develop a standard that is both practical and beneficial to the consumer, recognising concerns about complexity of bills.

13. The Bill includes an important provision (Clause 102) to enable the Secretary of State to enter into  effective binding agreements for Funded Decommissioning Programmes (FDP) for new nuclear facilities.  It is essential that this Clause is retained as drafted by Government through the process of parliamentary scrutiny.

14. This clause (102) allows the Secretary of State to define the circumstances in which they would or would not impose modifications on an approved FDP.  Such an agreement is likely to be needed to provide the necessary assurances and transparency on future costs for investment decisions to be made.

Green Deal

15. EDF Energy fully supports Government’s objective to significantly reduce demand for energy by stimulating customer investment in energy efficiency measures, which will make an important contribution to developing a low carbon economy. This is something that EDF Energy in the UK and EDF Group are working on in many countries. EDF Energy supports the full commercialisation of the provision of energy efficiency measures through a robust Green Deal.

16. We welcome the fact that DECC has recently provided further clarity on aspects of the Green Deal design, including measures to strengthen consumer protection. In particular, we welcome the announcement that a pro-rata approach will be taken to managing the default risk of Green Deal repayments, where consumer payments through energy bills will be distributed proportionately between their energy supplier and the Green Deal Finance Provider.

17. There remain a number of areas where Government has not yet come to a final decision on the development of the policy; it is important to get the design and legal framework of the scheme right.  EDF Energy is committed to working with Government, through the UK Business Council for Sustainable Energy (UKBCSE) and the Energy Retail Association (ERA), and bilaterally, on the details of the scheme in the following critical areas:

Customers

18. Strong demand for the scheme must be created: the Green Deal should be designed to provide a commercial solution to energy efficiency which is attractive to all consumers, whatever their property type or demographics.

19. Consumers should have confidence in the Green Deal, that their payback costs will not be higher than savings on their energy bill; and that there will be robust monitoring and quality standards for measures and providers, developed and supported by Government and industry. In addition, there should be clear processes for consumer advice and redress.

Debt liability and default

20. Finance should be provided by a broad range of private sector investors, who will benefit from demand stimulated for the Green Deal. These investors should manage the risks and handle the responsibility of debt liability via appropriate finance structures, and not through energy consumers.

21. EDF Energy is willing to collect Green Deal payments on behalf of Green Deal providers, but should not be liable to pay the providers where Green Deal payments have not been paid by the customer.

22. If suppliers incur liability for default on Green Deal payments, or if there are implications for companies’ balance sheets due to this debt liability, it will place upward pressure on bills and inhibit suppliers’ ability to make essential investment in Britain’s transition to a low carbon future   .

23. We welcome that DECC has recently provided further clarity during parliamentary debates on the Energy bill, that a pro-rata approach will be taken with regard to the collection of Green Deal repayments (see paragraph 15 above).

Billing

24. We continue to believe that it would be most beneficial for customers were the Green Deal charge to be placed on the gas bill, as savings will be mainly on heating costs and the linkage would be much clearer from the consumer’s perspective.

25. In view of the decision that the charge should be collected be via electricity bills, we are committed to working with DECC to attempt to find a solution that will provide a clear link between the Green Deal charge and energy savings for customers.

26. Costs of administering the Green Deal and developing billing system changes should be mitigated by an agreed administration charge where suppliers are paid for each Green Deal billing account they administrate rather than being socialised across all energy consumers’ bills. We welcome the fact that DECC supports this view.

Energy Company Obligation (ECO)

27. Alongside the Green Deal, a new supplier obligation is being developed, also introduced by enabling powers in Energy Bill. The new obligation will replace the current obligations, CERT and CESP, which are due to end in December 2012. We would welcome further clarity from Government on how ECO and the Green Deal will work together.

28. The Energy Company Obligation should be designed so that the right balance is achieved between providing targeted assistance to vulnerable customers to help to reduce their fuel bills through the installation of heating and insulation measures, and supporting Green Deal installations by providing subsidies for higher cost measures, such as solid wall insulation, for which the business case is more challenging.

29. In view of the impacts on energy bills of this and other environmental policies, and given the introduction of the Green Deal, the scale of the obligation on suppliers in cost terms should, as a minimum, not be increased from its current level (delivered through CERT and CESP).

Smart Metering

30. The Energy Bill will extend the Smart Meters provisions in the Energy Act 2008 for a further five years and clarify the authority that Ofgem or the Secretary of State has in requiring information from licence-holders in relation to reviewing and directing roll-out. We agree that the extension of the existing Energy Act powers will enable the Government to address any issues in the latter stages of roll-out and to ensure the business case is delivered.

31. EDF Energy is strongly supportive of Smart Metering, which will empower customers by providing a tool which will help them actively manage demand. Smart M eters are important for improved customer service, better energy efficiency, greater security of supply and for the development of smart grids. The costs of Smart Metering are however significant: the estimated cost of a national roll-out is £11 billion, with 46 million units needing to be installed in residential properties. EDF Energy alone will need to spend in the region of £2bn across our customer base.

32. Like Government, we are keen to see decisions taken and roll - out start as soon as the end-to-end Smart M etering solution is fully tested and proven. However, to achieve substantial roll - out by 2020 the following issues need to be addressed:

· To ensure cost efficiency for consumers Government and industry must work together to encourage customer engagement leading to acceptance and maximise uptake of Smart Meters.

· Ensuring robust safety standards across the industry for the roll-out of Smart Meters is a top priority.

· The consumer must be at the heart of the programme. Alongside driving take up, we must ensure that expectations are managed effectively whilst minimising cost to the consumer.

· Reduction of risk through robust governance, effective planning and thorough testing will prevent a ‘false start’ ahead of the introduction of the central data management system, "DataCommsCo" (DCC), to reduce the risk of stranded assets, and increased costs

· Development of the regulatory framework should include a ‘trial and test’ programme during the initial stages, followed by a controlled market start once DCC is operational in 2014.

Information on bills

33. Government has stated that the Energy Bill will introduce powers to increase information on bills, including on comparative consumption. We believe that existing legislation and industry measures should be sufficient to address this issue and, while we do not object to the Government taking enabling powers in the bill, these powers should only be used as a last resort if other industry initiatives are not successful.

34. EDF Energy is committed to providing clear information on our bills, and we are working with the Energy Retail Association and other energy suppliers to develop a standard that is both practical and beneficial to the consumer. Industry billing trials will begin in April, and, following the results of these, a report detailing proposals will be submitted to DECC in June.

35. We are committed to helping our customers with their energy bills and recently announced a new, two-year, nationwide partnership with Citizens Advice.

36. As part of the partnership, EDF Energy is providing full funding for Citizens Advice to offer a completely confidential and independent free phone advice line service for customers in England, Wales and Scotland.

37. The helpline number will be prominent on customer communications, including bills and specific letters, as well as featuring on the EDF Energy website.

Waste and Decommissioning: Clause 102

38. Provisions in the Energy Bill (now clause 102) which allow the Secretary of State to enter into binding agreements on Funded Decommissioning Programmes (FDPs) provide important assurances about prospective costs for developers of new nuclear build and are an important addition to clarify omissions in current legislation (Energy Act 2008).

39. This clause allows the Secretary of State to define the circumstances in which they would or would not impose modifications on an approved FDP.  Such an agreement is likely to be needed to provide the necessary assurances and transparency on future costs for investment decisions to be made.

40. It is an enabling provision and does not attempt to define the circumstances or the manner in which the Secretary of State will agree to restrict their discretion to make modifications to an approved FDP. This would be a matter for negotiation between the Secretary of State and the operator to help ensure appropriate protection of the taxpayer and reasonable certainty for the operator.

June 2011