Select Committee on Trade and Industry Appendices to the Minutes of Evidence



APPENDIX 5

Memorandum by the Electricity Association Fuel Poverty Task Force

 

INTRODUCTION

  1.  The Electricity Association (EA) is the trade association for the UK's major electricity generation, transmission, distribution and supply companies. EA represents the UK industry, nationally and internationally. We welcome the Committee's inquiry into fuel poverty, which is timely in view of the publication of the Government's UK Fuel Poverty Strategy, the recent PIU energy review and the forthcoming White Paper.

  2.  Fuel Poverty is a complex problem. The key contributing factors are the quality of the housing stock, the level of household income, and the amount of energy spend required to heat the home. There is often a complex pattern of interactions between these factors, and energy companies can influence only one: energy spend. A partnership approach is therefore essential if sustainable solutions are to be found. Energy suppliers are committed to playing their part in eliminating the problem, by offering competitive energy prices, introducing specific programmes, making it easier for customers to pay their bills, helping with energy advice and energy efficiency measures, and referring customers to other forms of assistance.

  3.  The Electricity Association, along with its member companies, has played a leading role in tackling the problem through its Fuel Poverty Task Force (FPTF). Established in May 1999, the Task Force's objectives have been to:

    —  identify sustainable solutions which address the real causes of fuel poverty;

    —  promote understanding of the fuel poverty issue;

    —  provide a forum for the exchange of ideas between energy suppliers.

  The Task Force has worked actively with others to help combat fuel poverty, including the Government and regulatory agencies, consumer groups and charities.

  4.  In the promotion of understanding, both within and between companies, the Task Force has made recommendations to Government (contained in a report issued in June 2001), and issued several publications (see Appendix 2). These have included new research into self-disconnection and rationing by consumers and, most recently, a comprehensive energy efficiency advice guide, Getting the most from Energy, which was launched in October 2001. The guide has been widely circulated to advice workers, both inside and outside the industry. The key role that the energy industry and the Task Force have played in helping to tackle fuel poverty has been acknowledged in particular by Government and Ofgem.

ANSWERS TO QUESTIONS

Q1 Is the government target of ensuring that by 2010 no members of "vulnerable households" need risk ill health due to a cold home, adequate? Can it be achieved?

  5.  We believe that the Government's target is a challenging but necessary one, and the industry is committed to playing its part to meet this objective. For the target to be achieved, however, not only will it require the fullest co-ordination between government and other actors, but also better identification of the fuel poor as well as more resources; finance, manpower and equipment. One of the difficulties has been that individuals suffering fuel poverty cannot be easily identified, making the targeting of appropriate solutions more difficult and time consuming. Initiatives, such as the Warm Zone pilots, should help but in order to achieve the 2010 target, it is important that government agencies establish, as soon as practicable, a comprehensive picture of those households most vulnerable to fuel poverty.

Q2 Why has the number of fuel poor households fallen recently? Can this reduction be sustained?

  6.  Reductions in energy prices have been a major contributor to the recent fall in the number of people in fuel poverty. According to Ofgem's Social Action Plan Review, lower prices have accounted for one million of the 1.5 million households removed from fuel poverty since 1996. Recent price reductions have largely resulted from the introduction of competition in the energy market, both in electricity generation and supply, and in gas supply.

  7.  Customers with prepayment meters have increasingly benefited from suppliers offering discounts applicable to PPMs, as competition in this sector of the market has begun to have a bigger impact. Since July 2001, there has been a significant fall in bills, of around 4 per cent in real terms, and recent Ofgem evidence has shown that, by October 2001, 31 per cent of electricity prepayment meter customers had switched supplier at least once.

  8.  However, there is a need for considerable caution when considering the impact of prices, which can go up as well as down. Relying on price reductions to solve the problem of fuel poverty is not a sustainable strategy in fuel markets subject to fluctuating prices. Moreover, the trend to place greater weight on environmental performance is likely to increase energy prices in the future. Therefore, while lower energy prices can help to alleviate the problem, ultimately other measures are required to tackle low income and poor housing if sustainable reductions in fuel poverty are to be achieved.

Q3  What is the relative significance of factors such as poor energy efficiency, low incomes or the cost of fuel?

  9.  It is widely accepted that the main cause of fuel poverty is the poor state of housing. Many occupants of homes with poor standards of energy efficiency will also be on low incomes, making it extremely difficult to afford to heat their homes sufficiently.

  10.  Improving the housing stock will take time and considerable investment. Whilst good progress has been made in recent years in improving the condition of public sector housing, private housing (both owner-occupied and privately rented) has proved more difficult to tackle.

Q4  How effective are the industry-led initiatives?

  11.  While energy suppliers cannot solve the problem on their own, a wide range of measures have been effective in tackling the problem, both in terms of reducing fuel poverty through specific initiatives (see Appendix 1), and improving understanding of the issues.

  12.  Specific initiatives and schemes have of course had a quantifiable effect, with significant savings in fuel bills and/or improvements in comfort levels. It is more difficult to measure the impact of initiatives designed to improve the understanding and the communication of the problem. However, we believe that these have also had a real impact.

  13.  Energy companies have focused on gaining an enhanced understanding of the problem, through research, and improved communications, through leaflets and publications designed to make companies and their staff deal more effectively with disadvantaged customers and those working in this area. Companies have also worked together, where appropriate, to share best practice and provide guidance and advice. This has been co-ordinated through the Electricity Association Fuel Poverty Task Force which has as its members both gas and electricity suppliers. The FPTF has contributed to understanding of the issues through its publications (see Appendix 2). These have included Affording Gas and Electricity, which contributed to the debate on prepayment meters and their usage through new research, and Getting the most from Energy—A guide for advice workers. The latter has been widely circulated to those dealing with the problem on a daily basis.

  14.  With regard to energy efficiency programmes, a wide range of targeted initiatives have been introduced. Since 1994, under the Electricity Industry Standards of Performance (known as the EESoP I and II) schemes, electricity companies have introduced many energy efficiency schemes that have delivered both environmental and social objectives. Since April 2000, suppliers of both gas and electricity have been obliged to deliver an energy saving target for both gas and electricity under ``EESop III''. The target is built around an indicative spend of about 1.20 per customer, per fuel. The EESoP schemes have a total spend of some 100 million, with at least 71.5 million being spent on disadvantaged groups. As a result of the first three EESoP schemes, bills are estimated to have reduced by 7-8 per annum. From April 2002, the new Energy Efficiency Commitment will see a major expansion of the current programmes, and will run from 2002 to 2005. On the basis of current assumptions, disadvantaged households should experience a further 16-17 reduction in annual fuel bills.

  15.  The industry remains committed to looking at further measures and to working closely with the Government and other agencies. Many measures have been put in place by the energy suppliers in recent years, and the introduction of competition has had a significant impact, both in terms of encouraging innovation and reducing prices. Energy advice also has an important role in achieving and maintaining energy savings. The FPTF has recommended that DEFRA seriously considers allowing an agreed energy credit towards suppliers' EEC targets for extra advice provided, for example, during debt counselling, whilst undertaking a survey for home installation measures or whilst installing new appliances. In addition, credit should be given for energy advice under the EEC scheme for priority groups that lead to the take up of energy efficiency measures—whether through the EEC or not.

Q5  How can Government promote the take-up of energy efficiency measures in households whose income is just above benefit level?

  16.  The EA Fuel Povery Task Force has often expresed concern about this issue, and has urged DEFRA to ensure that such groups are considered. It is estimated that there are at least one million fuel poor households which are not in receipt of income related or disability benefits. Better identification, by Government agencies, of these particular households, followed up with targeted measures and appropriate incentives, is needed.

  17.  As one step to alleviate this problem, EA believes that the definition of ``priority groups'' should include all those who are aged 60 or over. The Task Force has also recommended that private sector landlords are also given an incentive to participate in energy efficiency improvements, and that mechanisms are put in place to ensure that tenants receive an appropriate share of the resulting benefits.

Q6  How much could better co-ordination between agencies or fiscal measures help?

  18.  The industry has always stressed the importance of collaboration in tackling the fuel poverty problem. This applies both between Government departments, and between Government and all other players, including energy suppliers, regulatory agencies, local Government and the voluntary sector. The Government's Fuel Poverty Advisory Group (FPAG) should be a key facilitator of better co-ordination and improved delivery. Consideration should be given to the inclusion of representatives from the health profession and local authorities on the FPAG.

Q7  What contribution to the elimination of fuel poverty might be made by technological advances?

  19.  More advanced metering already provides some assistance to suppliers in dealing with disadvantaged customers, and this is likely to increase in future with the availability of new technologies. Recent research has confirmed the valuable role that ``pay as you go'' tariffs (using a prepayment meter) can play in helping low income households budget for energy and retain financial control. Existing prepayment systems are more costly than providing credit facilities but the widespread introduction of ``smart'' meters (which could be set up to allow pre-pay or credit) could allow the removal of the current surcharge. This is already happening in, for example, Northern Ireland, through the introduction of the ``keypad'' meter. In the future, ``smart'' metering has an important role to play in educating customers in their pattern of energy use, improving energy efficiency and helping customers to budget. Improved information on usage will provide suppliers with better feedback on dealing with customers in difficulty. Home control devices including temperature sensing, which could be used in conjunction with "smart" meters, could for example, provide alerts on hypothermia.

  20.  Technological advances in housing design and materials could also help to provide better living conditions whilst at the same time requiring less energy than conventional homes. However, it must be recognised that the introduction of new technologies is both expensive and, in the case of metering, is not helped by the arrangements for competitive supply, a problem which has been recognised by Ofgem and is the subject of further study.

Electricity Association

15 April 2001

Annex 1

 

  Major fuel poverty initiatives and their impacts.

  The following is an indicative list giving the scope of electricity companies' initiatives. It is not a comprehensive listing of the initiatives available.

Scheme

Factors addressed

Method of operation

Impact

PowerkeyPlus

Energy spend

Pilot scheme to remove PPM surcharge for Powerkey customers in Newham and Plymouth. (London Electricity)

Latest figures available give an 18 per cent take-up of the scheme.

Home Energy and Home Energy Direct

Energy spend

Removal of PPM surcharge through phased introduction of new keypad "pay as you go" meters. The standing charge is also being removed for the majority of domestic customers. (Northern Ireland Electricity)

The majority of domestic customers have had their standing charge removed. In addition, 33,750 PPM customers have had their PPMs replaced with key pad meters with 90 per cent of customers reporting the new meter is easier to use and 70 per cent preferring it to their old PPM.

Health Through Warmth

Housing
Energy Spend
Income

Identification of fuel poor households through visiting regimes of community carers and referrals made to a collaborative referrals team. Partnerships involve Health Authorities, NHS Community Health Care Trusts and City Councils. (npower)

Initially targeted to the most vulnerable households in Birmingham and Wolverhampton. Planned to grow to be a 10 million national scheme with the potential to help up to 250,000 fuel poor homes in E&W.



PPM package

Energy spend

Removal of the PPM surcharge through phased introduction of new metering technology. It involves a programme of visits and phone calls to PPM customers to encourage take-up of energy efficiency measures. (Powergen)

The 230,000 PPM customers in the East Midlands region will have PPM surcharges eliminated by 2005 with 800,000 of energy efficiency measures specially available for those customers.

NEST Makers

Housing
Energy spend
Income

Jointly owned with EAGA, Neighbourhood Energy Services Team (NEST) Makers offers state benefits checks, access to flexible fuel payment options, energy efficiency packages and budgeting advice. (ScottishPower)

Many thousands of households have been directly assisted with energy efficiency measures to help deliver affordable warmth.

EnergyCare Network

Housing
Energy spend
Income

In partnership with ecsc, the programme will develop a referral network in targeted regions of the South East matching vulnerable households in fuel poverty to available grants and support services. (SEEBOARD)

In the first year, 200 networkers to be identified and trained, and 15,000 energy efficiency measures to be implemented.

StayWarm

Housing
Energy spend
Income

Targeted at households on low income. Customers make a fixed regular payment based on the size of home and number of occupants—there is no meter reading or billing. (TXU)

The service started in South and West Yorkshire as the first phase of a national roll-out.

Scheme

Factors addressed

Method of operation

Impact

HEATPlan

Housing
Energy spend
Income

The Home Energy Action Team (HEAT) assesses customers' property and use of energy, improves the property's insulation and thermal efficiency at no cost to the customer. Free benefits checks given and affordable payment arrangements are agreed. (Yorkshire Electricity)

The package shields the customer from any increase in running costs up to 10 per cent of the agreed payment level.

British Gas Jigsaw

Energy spend
Income

Bill payment account in conjunction with Royal Bank of Scotland aimed at providing customers who budget by cash or without bank accounts access to Direct Debit discounts. It enables customers to reduce their energy bills by paying through a lower tariff and maintain a positive financial record. (Centrica)

Customers are able to maintain
a positive financial record and build confidence in using this type of service and payment method.

Warm-a-Life

Housing
Energy spend
Income

Package addresses poor housing, benefits income and fuel costs through energy efficiency, advice and tariff reductions. (Centrica)

Full package can lead to savings of 950 in the first year. Scheme details mailed to 150,000 disadvantaged customers in the last quarter of 2000, with a further 850,000 mailings planned in 2001.

Affordable Warmth

Housing
Energy spend
Income

Installation of energy efficiency measures and gas central heating to tenants in social housing. (Transco)

Improved comfort levels for up to 1 million homes—12,300 households have been removed from fuel poverty since program launch.

 

Annex 2

 

  Fuel Poverty Taskforce publications list, April 2002.

October 2001

Getting the Most from Energy

A guide for advice workers providing energy efficiency and payment advice services.

July 2001

Prepayment meters—Facts not fiction

A background and discussion paper on prepayment meters and their use.

June 2001

Fuel Poverty (summary report)

Summary report presenting the main findings of the Fuel Poverty Task Force since its foundation in May 1999.

June 2001

Fuel Poverty (full report)

Full report presenting the main findings of the Fuel Poverty Task Force.

May 2001

DEFRA/DTI draft consultation—UK Fuel Poverty Strategy

Task Force response paper.

March 2001

Affording Gas and Electricity (summary report)

A summary of the research by the Centre for Management under Regulation, University of Warwick, and the Centre for Competition and Regulation, University of East Anglia, with a response by the research steering group.

March 2001

Affording Gas and Electricity (full report)

Full final report based on data and analysis by the Centre for Management under Regulation, University of Warwick, and the Centre for Competition and Regulation, University of East Anglia.

May 2000

Working Together to beat fuel poverty

Leaflet setting out the industry's co-ordinated, partnership approach to the problem of fuel poverty.

May 2000

2000 Progress Report

Report on the work of the Task Force up to May 2000.

November 1999

Fighting Fuel Poverty

Background and information publication.

November 1999

Social Action Plan Framework Document (Ofgem)

Task Force response paper.

May 1999

Social Action Plan discussion Document (OFFER/OFGAS)

Task Force response paper.

 

 


 
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