Energy and Climate Change CommitteeWritten evidence submitted by Citizens Advice

Introduction

1. Citizens Advice welcomes the opportunity to respond to the Energy and Climate Change Committee’s call for evidence on energy prices, profits and fuel poverty.

2. The Citizens Advice service provides free, independent, confidential and impartial advice to everyone on their rights and responsibilities. It values diversity, promotes equality and challenges discrimination.

3. The service aims:

to provide the advice people need for the problems they face

to improve the policies and practices that affect people’ s lives.

4. The Citizens Advice service is a network of nearly 400 independent advice centres that provide free, impartial advice from more than 3,500 locations in England and Wales, including GPs’ surgeries, hospitals, community centres, county courts and magistrates courts, and mobile services both in rural areas and to serve particular dispersed groups.

5. In 2011–12 the Citizens Advice service in England and Wales advised 2.03 million people on 6.9 million problems. Debt and welfare benefits were the two largest topics on which advice was given. In total we received 136,000 fuel related enquiries in 2011–12 including 97,000 about fuel debt, 2,600 enquiries about complaints and redress and 400 enquiries about selling methods.

6. We have limited our response those questions which best fit our areas of expertise. We have chosen to address prices and profits in tandem as it is difficult to consider these interlinked aspects in isolation.

Prices and Profits

To what extent (if at all) should the Government or the regulator intervene in the market to affect the prices consumers (or certain groups of consumers) pay for their energy? Should any changes be made to the Government’ s current approach?

AND

Many consumers believe that energy company profits are the reason energy bills have been going up in recent years. Is this perception fair? AND To what extent does the way energy companies communicate profits to the general public influence the public’ s perception of these companies?

7. Citizens Advice is extremely concerned about the ongoing exponential rise in consumer energy bills. In 2010–2011 the average electricity and gas bill grew by 8% and 9% respectively and the “big six” energy companies announced further increases of around 10% in the final quarter of last year.1 This rate of increase is significantly out of step with household income. In 2011 most benefits were uprated by 5.2% in April 20112 and will rise by just 1% this year while average earnings for full time employees grew by 1.4%3 and the minimum wage by 2.5% in 2010–11.4

8. A CAB in the South West reported the case of an elderly woman who had large gas and electric bills which she was unable to afford to pay and so had accrued arrears on both accounts. Her supplier was threatening disconnection if she did not pay what they wanted. She was unable to afford the amount they were asking and had cut down on the amount of gas and electricity she used to the point where she no longer had a bath and warmed up any water using the kettle rather than running the hot water tap. She had also been unable to afford to heat her home through the winter.

9. The economy is yet to show significant signs of improvement and welfare reform will result in an estimated two million benefit recipients being worse off. In addition, the worrying trend towards funding infrastructure, such as those contained in the current Energy Bill, and social policies, such as the Energy Company Obligation, through consumer bills rather than general taxation will place further upward pressure on bills in the coming years. In 2011–12 our bureaux received 97,000 enquiries about fuel debt and we expect these numbers to increase over the next few years unless decisive action is taken to address fuel poverty.

10. There is a common perception amongst consumers and many commentators that energy prices rise like a rocket when wholesale prices rise but sink like a feather when the wholesale prices fall. Suppliers strongly refute this claim and maintain that their profits have remained fairly steady at around 5% with changes in prices reflecting rises and fluctuations in wholesale prices. What is clear is that the way in which energy prices are set, which factors have an impact on the final bill a consumer receives and what proportion of the bill is accounted for by each of these factors is currently insufficiently transparent.

11. For example, a common theme in the communication by suppliers of the most recent price rises to consumers was the part played in the decision by the increasing number of obligations placed on suppliers by Government. The Government strongly refuted this claim, leaving consumers angry and confused. Uncertainty around these issues further erodes consumer trust in energy suppliers, reinforcing the idea that suppliers are all the same, as well as having an impact on the ability of consumers to understand the market and make informed decisions.

12. In order for suppliers to regain the trust of consumers, transparency and clarity around pricing is essential. Government and the regulator, along with suppliers, have a key role to play in ensuring that this becomes a reality. There should also be a more open, reasoned public debate around price rises from all parties, rather than the political points scoring in the media between suppliers, Government and Ofgem which has characterised recent price rises.

How effective is Ofgem in ensuring consumers get a fair deal? Are there any areas for improvement

13. Since the probe into the energy market carried out in 2008, Ofgem has overseen and contributed to some very welcome improvements in the energy market in relation to the policies and practices of energy suppliers. We also welcome the work they have done, and are continuing to do, in improving the identification and experiences of vulnerable consumers. We have worked closely with Ofgem on these issues, among others, and will continue to do so.

14. We would, however, like to see Ofgem act more quickly and decisively once a problem is identified. For example, while some significant improvements have undoubtedly been made, many of the problems identified in the probe in 2008 persist to the extent that Ofgem deem it necessary to introduce legally binding standards of conduct requiring suppliers to, amongst other things, treat customers fairly, communicate with consumers in plain and intelligible language and make it easy for their consumers to contact them. It is now more than four years since the initial probe was carried out and yet Ofgem is still consulting on measures to address these issues with even optimistic estimates placing the implementation of the first of these reforms several months from now. Meanwhile consumers are still faced with an impenetrable market, poor customer service and widespread bad practice.

Fuel Poverty

Is the Government on track to meet its target of eliminating fuel poverty by 2016 and will reduced Government spending in this area affect their ability to achieve this target?

15. The latest official fuel poverty statistics showed that 4.75 million households in the UK, approximately 19%, were in fuel poverty in 2010. These figures do not take into account recent price rises and the income of many households rising by significantly less than inflation in the intervening period. Without a significant increase in Government spending on the energy efficiency of fuel poor homes the number households in fuel poverty is as likely to increase by 2016 as be eliminated. Research carried out on behalf of the Energy Bill Revolution estimated that 6.2 million households in England will be living in fuel poverty by 2016. We are therefore extremely disappointed that from January this year, following the closure of the Warm Front scheme, there ceased to be a Government funded energy efficiency programme in England.

16. The Green Deal and Energy Company Obligation, which is designed to replace existing schemes, will not, in our opinion, be sufficient to eliminate fuel poverty. Analysis by the Association for the Conservation of Energy found that the total budget targeted at fuel poverty in England will fall to £879 million in 2013 from £1.19 billion in 2009.5 We are also disappointed that the Energy Company Obligation will be funded through consumer energy bills. This is regressive and may have the perverse effect of pushing some households who do not benefit from the scheme, but will contribute to paying for it, into fuel poverty.

Has the Hills Review resulted in any changes to fuel poverty policy? How could its findings be used to improve the efficacy of fuel poverty policy?

17. Citizens Advice welcomed the final report of the Hills Review which gave a thorough, well researched analysis of the causes and devastating consequences of fuel poverty. Overall, we are also fairly supportive of the proposed change to the definition of fuel poverty to the Low Income High Costs (LIHC) approach favoured by Professor Hills, although we did raise concerns about particular aspects. In its response to the final report the Government proposed to implement the majority of Professor Hills’ recommendations. The Hills Review has therefore made a significant contribution to our knowledge regarding the causes and consequences of fuel poverty as well as prompting a significant change to the way in which fuel poverty will be defined in the future.

18. We were particularly pleased that the Government also announced in its response that it would be going ahead with Hills’ recommendation that the government should set out a “renewed and ambitious strategy for tackling fuel poverty, reflecting the challenges laid out in (the) report and the framework set out (in the report) for understanding them.” This is long overdue. It is more than two years since the Spending Review in 2010 in which the Government announced its intention to commission an independent review to look at the fuel poverty definition and more than eighteen months since Professor Hills and his team were commissioned to carry out this task. Furthermore, as welcome and vital as the commitment to draw up a new strategy to combat fuel poverty is, this will take further valuable time to put together and longer still to implement. Meanwhile the fuel poor continue to suffer in cold homes.

19. While it is undoubtedly important to have an appropriate definition of fuel poverty which allows the Government and other stakeholders to accurately identify those most in need of assistance, it is now time to stop quibbling over the precise definition of fuel poverty and take action. Endless debate around the merits or otherwise of various definitions and indicators has been a significant distraction for all involved in the fuel poverty debate, at the end of which we are no closer to finding a solution.

Will the Government’s proposals to ensure that consumers are on the cheapest tariff have any impact on fuel poverty?

20. Citizens Advice welcomed the Government’s proposal to ensure that consumers are made aware of the cheapest tariff their supplier offers. In our view providing consumers with personalised estimates of the savings to be made from switching tariffs on relevant communications can reasonably be expected to act as a prompt for some consumers to contact their suppliers and switch tariff. The level of consumer interest and level of trust in the energy market is sufficiently low, however, that many consumers do not read the correspondence sent to them by their supplier and there is no guarantee that even those who do read the correspondence will be prompted to take action. Furthermore, while a consumer may be able to save some money by switching, and should therefore be encouraged and helped to do so, for many households even the cheapest tariff currently available is far from affordable and the efficacy of this proposal as a tool for alleviating fuel poverty should not be overstated.

21. That being said, as part of the wider package of reforms proposed by Ofgem and DECC we believe that this remedy will help some consumers to engage and reduce their energy bill. This may begin to help to alleviate fuel poverty for some households and is therefore worth pursuing.

To what extent do fuel-poor households engage in switching? What are the barriers to greater levels of switching from these groups?

22. Alongside the barriers to switching faced by all households, such as the complexity of the market, there are some groups of consumers who may face additional barriers. For example, consumers who are in debt to their energy supplier may be prevented from switching by their existing supplier.

23. A CAB in London reported the case of a man who wanted to switch supplier but was prevented from doing so due to fuel arrears of £800. He was told by his supplier that would need to pay £99 every two weeks which, as he was reliant on JSA and housing benefit for his income, was far from affordable. The client felt that he was being “held hostage” as he was unable to change to a supplier whose lower price would make his fuel bills more affordable. While the CAB could advise him how to ask his supplier for a more realistic payment schedule, they were unable to help him to switch to a cheaper deal.

24. Similarly, the options for those who have elected , or been obliged by their supplier, to use a pre payment meter are significantly more limited than the options for those on a standard meter. In addition, some of the cheapest deals available are only available to those paying direct debit and/or choosing to manage their account online.

25. Fuel poor vulnerable customers may face further barriers to engagement. Official fuel poverty statistics released by the Government show that 18% of vulnerable households6 in the UK were fuel poor in 2010, compared to 16% of all households.7 Vulnerable consumers, such as the elderly, disabled and those with mental health issues can find it particularly difficult to understand overly complex bills and communications from suppliers and can find it more difficult to exercise their rights and get problems put right.

26. A CAB in the North of England saw a lone parent with mobility problems living in rented accommodation. Following a discussion with the representative of an energy supplier she decided to switch her supply to his company. She was told by the sales representative that they would take care of the switching process, implying that it would be stress free for her. She was told by the supplier that she needed to provide up to date meter readings but she could not access her meters due to her mobility problems. She explained her difficulty and they said they would come and read them for her but she would need to make an appointment. She was left in a queue to speak to someone at customer services to arrange this appointment for so long that she gave up. She then received repeated calls from her original supplier asking why she had decided to leave them and stated that the quote she given by the new supplier was not correct for her usage and persuaded her to keep her supply with them instead. The client found the whole experience to be very confusing and stressful and wished she had never started the switching process at all.

27. Experiences like these can be a key factor in damaging consumer confidence and trust in suppliers and discourage them from engaging in the market in the future. The complexity of the range of the tariffs available can also be particularly bewildering for some vulnerable consumers. Therefore, as recognised by Ofgem and the Government in their respective proposals for retail market reform, vulnerable consumers, and particularly those who are fuel poor, often need additional help and support to engage effectively in the market and make good switching decisions. Energy Best Deal, a scheme Citizens Advice runs in conjunction with Ofgem, which provides extra information and support to vulnerable people to help give them the confidence and skills to engage in the energy market and switch to the best deal for them provides an example of how this can be facilitated.

To what extent do fuel-poor houses currently take advantage of energy efficiency schemes? Could anything be done to increase the uptake?

28. Suppliers responsible for delivering the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP) have reported significant difficulty generating sufficient take-up of energy efficiency measures to meet their targets, particularly in regards to the “super priority group”. The Warm Front scheme has experienced similar difficulties and Citizens Advice were extremely disappointed that over £50 million, more than a third of the total budget, went unspent in 2011–12 and was returned to the Treasury. The scheme closed to new applications in January this year and we expect that the scheme will once again have failed to spend its budget despite the decision to award £25 million to the new local authority fuel poverty fund.

29. It is important to note that each of these schemes offered free energy efficiency measures and in some cases suppliers were even offering cash incentives to certain groups to allow them to fit measures for free. The Green Deal, the Government’s new flagship energy efficiency scheme, is based on consumers taking out a loan to pay for energy efficiency measures, to be paid back over time through their energy bill. It is likely, therefore, that Green Deal participants will face considerable challenges in generating sufficient interest from consumers.

30. One of the key factors in the underspend in the final two years of the Warm Front scheme was the failure of the Government and Carrillion to adequately publicise the scheme. Citizens Advice, along with other organisations with similar concerns such as Consumer Focus, took part in two campaigns to improve awareness and take up of the scheme in its final months, both of which contributed to a significant boost in take up. It is clear, therefore, that future energy efficiency schemes, starting with the newly introduced Energy Company Obligation, must be accompanied by an adequately resourced, sustained publicity campaign.

February 2013