4 Compensation
When compensation applies
48. Under the Electricity (Standards of Performance)
Regulations 2010, electricity customers are entitled to compensation
if the quality of service they receive falls below the agreed
standards. For example, in normal weather conditions a customer
who has had no electricity supply for 18 hours or longer will
receive a payment from their DNO of £54, and for each additional
12 hour period with no supply they will receive a further payment
of £27.[31] If the
disruption to their supply is due to an extreme weather event,
different standards of service are expected and different compensation
levels are applicable.
49. However, "[d]ue to the low population density,
topological challenges and climatic conditions, in legislation
the Highlands and Islands area is exempt from compensation while
being off supply for these extreme weather events."[32]
SSE told us that it "chose to disregard this exemption and
paid an ex-gratia payment of £75 to all customers off supply
for more than 48 hours [continuously]" following last winter's
storms, and that it made an ex-gratia payment of £150 to
those customers on Islay who had suffered an extended period of
multiple interruptions.[33]
50. It should
be noted that SSE went beyond statutory requirements and decided
to compensate those customers in the Highlands and Islands worst
affected by the recent storms. We recognise that severe weather
conditions pose particular challenges to distribution network
operators serving the Highlands and Islands but believe that customers
in those areas should still expect to receive compensation if
minimum standards of service are not met. We recommend that Ofgem
introduce best practice guidance for DNOs serving the Highlands
and Islands, setting out minimum levels of service their customers
can expect and corresponding levels of compensation.
The level of compensation
51. Payments from DNOs to customers for breaches
of the Guaranteed Standards serve two purposes: they are an incentive
for DNOs to provide a high quality of service and also a compensation
to customers for losses incurred because of poor service.
52. On the first point, Ofgem told us that:
[...] the level of compensation has been set to act
as a strong incentive for the DNO whose revenue per domestic customer
is about 17 percent of the average annual domestic electricity
bill, equivalent to about £72 per customer. A Guaranteed
Standard payment of £54 to a customer significantly reduces
the DNO's income from that customer and acts as a powerful incentive
to manage their networks so as to avoid having to make these payments.[34]
53. On the second point, however, we were told that
the payments were an inadequate compensation for the losses incurred
by customers. Alastair Redman told us:
In essence, they are offering what I would consider
an insult to a lot of people. They offered most businesses a cheque
for £75. Most businesses would happily have paid 10 times
that for it not to happen. Residents alone should be entitled
to more than that. Businesses are down thousands of pounds on
their balance sheets in January. Of course, they are saying it
has to go through insurance. That pushes up your premiums [...]
What they have offered is an insult and is unacceptable. They
are just dragging their heels because they know how much this
will cost them.[35]
54. The Institution of Engineering and Technology
highlighted people's growing dependence on electricity:
Electricity has become essential to modern day life
and our dependence has grown to the point whereby any disruption
can have a severe impact on our lives. The list of services affected
in a prolonged power cut includes: communications, water pumping
(for drinking, washing and water for heating systems), internet,
business systems, electronic equipment, industry, commercial applications
such as electronic doors and electronic funds transfer, healthcare
monitoring, and safety systems such as lighthouses etc.[36]
Moreover, we were told that dependence on electricity
was likely to grow still further as energy supplies were "decarbonised".[37]
55. This view was strongly reinforced by the experiences
of people from Clachan in Kintyre following the storms this winter:
The impact on the community became severe. The shop/post
office/filling station in effect ceased to function in any normal
sense. People were only able to obtain food and other goods from
the shop thanks to the generosity and pragmatism of the owner
who allowed villagers to take these relying on their honesty to
pay when the cash register/card reader was functioning again.
The post office did not operate with consequent impact on those
who might wish to transact business or receive benefits. Petrol
was not available and, since the closure of the filling station
in Tarbert, Lochgilphead or Campbeltown supplies were 25 miles
away with no certainty that they would be dispensing petrol when
you got there. One of the local doctors was found searching for
petrol. The shop is the life blood of the village and although
a request was made to SSE for a generator to be installed at the
shop to maintain community life none appeared - had it done so
the impact on the community would have been significantly mitigated.
The school and village hall were also out of action.[38]
56. While
compensation levels may be set at an appropriate level to incentivise
good quality of service from DNOs, we do not believe that they
adequately compensate consumers for the consequences of power
cuts. We recommend that Ofgem consider increasing compensation
levels so that they more realistically reflect the effect on consumers.
31 Ev 77 Back
32
Ev 87 Back
33
Ev 87 Back
34
Ev 77 Back
35
Q 20 Back
36
Ev 55 Back
37
Ev 54 Back
38
Ev 81 Back
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