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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published AS HC 37-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE Environment, Food and Rural Affairs COMMITTEE
` Energy efficiency and fuel poverty
10 December 2008 MR JIM McDONALD, MR ALAN SMITH and MS SARAH HARRISON and MR CHARLES HARGREAVES Evidence heard in Public Questions 121 - 259
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environment, Food and Rural Affairs Committee on Wednesday 10 December 2008 Members present Mr Michael Jack, in the Chair Mr David Drew Lynne Jones David Lepper Miss Anne McIntosh Dr Gavin Strang David Taylor Mr Roger Williams ________________ Memoranda submitted by E.ON
Examination of Witnesses
Witnesses:
Mr Jim McDonald, Commercial
Director Retail E.ON Q121 Chairman: Can I welcome everybody to the second of our three evidence sessions
on our inquiry into fuel poverty and associated issues. Can I, for the record, welcome our first set
of witnesses for E.ON UK, Mr Jim McDonald, the commercial director of the
retail part of that business, for RWE nPower Mr Alan Smith, head of
government and regulatory relations, and for Centrica, Gearoid Lane, managing
director of British Gas New Energy. This
is a subject with which you are very familiar.
It is a subject which has been the focus of public attention for some
time and yet, Mr Lane: The starting point is to say that by saying there was a need for a fundamental review we were not trying to suggest that everything that had been done up until now has been worthless or indeed a failure but just a recognition that the Fuel Poverty Strategy was conceived and put together in 2001 which was a time when energy prices were at very different levels to where they are now. There was a much more benign pricing environment for energy and many other factors were different as well particularly in relation to security of supply. The concerns we have now are different to the ones we had then. We were a lot more comfortable as regards security as a nation back then and the focus on the need to deliver radical changes in respect of technologies for reducing CO² emissions was lower than it is now. Against that backdrop it is widely recognised that the 2010 target is very unlikely to be met and the mix of policy instruments that we have might not be fit for purpose in delivering the 2016 target of elimination of fuel poverty. It was really with that in mind that we said it would be sensible rather than focusing around the edges of existing policy instruments to say should we look at the whole thing again and look at all the things we have and will deliver in 2016 or whether we need a different approach. Q122 Chairman: Do our other two witnesses share the same view that we are at a
watershed moment and there needs to be a fundamental change? I was looking at Ed Miliband's speech
entitled The Rise and Fall and Rise Again of a Department of Energy. He seems to be taking quite a robust line on
the whole subject of fuel poverty; in fact the words used in the speech are
rather less brutal than the interpretation given by some newspapers. For example The Times describes his
approach as "a more muscular approach would be needed from the government to
tackle the challenges of fighting climate change, curbing fuel poverty and
securing long-term energy supply". I do
not know whether you interpret that as a sea change moment in government policy
which affects this area of fuel poverty but it would be interesting to have
your reaction to what both Mr Smith: What we do need is a road map that quantifies the scope and scale of the task, and with that in mind we do welcome the creation of the Department of Energy and Climate Change. Hopefully that will bring together the key policy areas of government as an enabler to take account of the energy policy objectives of sustainability, security of supply and affordability. We do need to achieve various different targets with different drivers, and we have touched on some of those: we have the 80 per cent reduction in carbon that we need to do by 2050, we have the 20 per cent renewable energy targets, and we have the fuel poverty targets. To date we have had a lack of a clear long-term action plan and the industry has experienced a set of relatively short-term obligations. Just as we get geared up to deliver one set of issues another target is set. Q123 Chairman: Do you mean by that the succession of EEC1, EEC2, CERT and now the new Community Energy Savings Programme? Mr Smith: That is exactly what I mean. Energy efficiency must be the long-term way to reduce and alleviate fuel poverty because it delivers year-on-year sustainable benefit, but we need a greater coordination of the programmes that currently exist which should avoid resource duplication and address some of the tensions that exist between carbon saving and energy efficiency. Q124 Chairman: Who should do all this? It sounds like a big job that has to be done in a great rush. If we are talking about 2016 and here we are in 2008 that is seven working years away. If people talk about fundamental change to achieve the redirection or coordination of policy that you delineated, it will probably take a year's work so that is six years to do it. We are already running out of time. Who is going to do all this? Mr Smith: I think we all need to do that. Q125 Chairman: When you say "we all need to do it", who do you mean by "we"? Mr Smith: Government and industry. Industry is set out to deliver many of the objectives that have been set and it is working with government. I think the relationship we have with government is very good. Q126 Chairman: If it is very good, why has it not delivered this coherence and coordination of policy which you just said needs to be improved? Mr Smith: In terms of the policy that has been set to date, we have always delivered on EEC1 and EEC2 and we will deliver on CERT. What I am saying is that at times there may be a tension within some of those policies with the priority group within CERT and EEC, the tension between delivering energy efficiency and then priority on fuel poverty issues. It is those sorts of things which need to be clarified and that is why I believe we are at a stage, particularly with the creation of DECC, where we should start working on a very clear road map. Q127 Chairman: If you have had all these excellent working relationships with government, why did you not say "Excuse me, we are on our third or fourth phase of this particular thing, could you clarify what the priorities are?" You very helpfully put before the Committee they need to be done now, but Mr Lane quite rightly pointed out you started off in 2001 on this programme and here we are in 2008, seven years on, craving clarification. Mr Smith: As we move on, it is a learning process. Q128 Chairman: It is a long time to learn about it. You, from the world of business, work against the background of very clear plans, that is what corporate management structure planning is all about, and if you were not quite clear what the aims and objectives of the policy was did you raise this with government during the previous period? Mr Smith: Of course we raised them with government but I think business would not on its own always have the same policy drivers and objectives that the government has. It is trying to make sure that we deliver what is right so that businesses can be competitive, that we can deliver things in an efficient way and that government also meets the objectives and targets which it sets itself. Mr McDonald: I will not repeat what has already been said as that would not be helpful. Can I turn the debate around very slightly from Gearoid's viewpoint? It is important that we turn around and focus on the customer who is the individual, at the end of the day, we are trying to make the change on behalf of. There are three important elements, and certainly we focus down as a business from that. Without any shadow of doubt energy efficiency is a fundamental part of that, and will be going forward. That is the sustainable solution to fuel poverty, however there are two other very important aspects of this we need to look into: one is there is already specific help out there in terms of government benefits that a lot of these people are not claiming at this point in time. We have access to that and we believe responsibility should sit with those who have the capability of delivering it. We have access to customers and one of the key things we have been trying to do is to ensure that in terms of fuel poverty that we make sure our customers actually are claiming what they are entitled to. I can give a quick example of that. Last year we went out on about 2,000 cases and in 1,000 cases we were able to help those people who were in fuel poverty. The average amount we were able to help them, which was not a contribution from us but was actually entitlement they were entitled to, was on average about £2,000 per annum. I think there is a duty, and we are happy to take it on, to get out to these customers and make sure that what currently exists we are utilising to an optimised basis to ensure that it is there. The third element is we need to focus then on those who are most at risk. I pull together in essence fuel poverty and energy efficiency. We want to certainly focus down on those most at risk from not being able to heat their homes during the winter and we are trying to focus down specifically on the elderly and those over 60. Q129 Dr Strang: We all agree that the industry and government collectively have to have multiple objectives in dealing with security of supply, affordability, tackling fuel poverty and our responsibilities in relation to climate change. I was interested in what was said about the timetable. I do not want to make a meal of this, Mr Smith, but you said long term in terms of energy efficiency in homes. The key clearly to fuel poverty, and Mr McDonald was implying this, is to tackle all these energy inefficient homes that many of our elderly constituents, and others who are disabled, are living in. I put it to you that the Warm Front Scheme could be doing so much more. If the ceiling was lifted at a time when the Chancellor is trying to spend a lot more money in the short-term and taking it from the future. Pensioners have great difficulty; they have to arrange for somebody to come, they have to lift their carpets, and all this sort of thing, before somebody can come to do it. If somebody took a grip of this and said we are going to put up the ceiling, we are going to put more money into this. We know we will get more work in relation to this for the industry and jobs in the construction sector. We should be doing that now. This is a chance surely to actually bash on with getting people into these houses and getting work done and paying the bill afterwards. Q130 Dr Strang: I make the point that housing is fundamental to this. The reality is there is social housing both north and south of the border, a lot of Housing Association houses really in need of proper insulation. Surely the energy industry and the suppliers can at least do their best to help raise the profile and get some action from yourselves and everyone including the local authorities and central government, the Scottish government and the Welsh Assembly, on housing. Dr Strang: It is a matter of how can you can deliver in the next couple of years. Q131 Chairman: Are any of you involved in an initiative I heard recently announced by Dame Tanni Grey-Thompson, who set up an organisation under the heading of Home Heat Help where you ring up a line and it is focused particularly on families, I think I am right in saying, with people who have a disability. It has attracted quite a large sum of money to promote help. I thought it was a most laudable objective but I was concerned that it was an indicator to us, with our public programme and the programmes you have been following, that there is still an awful a lot of unmet need, of people unaware of what help exists who are fuel poor. Is that a fair assessment? Have you done any work to identify the unmet need amongst the fuel poor of access to the schemes of which you have been talking? Mr McDonald: With regard to your first point, I think that contact is via the ERA so I am sure is does involve us but I do not have any specific knowledge of that. You raise a very valid point, and I made the point earlier, that capability should sit with responsibility. As energy companies we do have the capability of accessing those specific customers with specific needs. For example, from an E.ON point of view, we are working very closely with Age Concern again to identify the over 70s. We have sent out a direct proactive communication to those over 70s who we think actually are using less gas than we would expect to be able to keep the house warm and offering them direct energy efficiency advice as well as a warm assist product which is a 15 per cent discount. I do think, without trying to say E.ON is doing all this, it is fundamental that we target down on those who are most at need and we go out and identify them. We are doing a lot on it and I am sure there is more we can do. Q132 Chairman: E.ON as a company is involved in other European Union
countries. Most of our focus has been
looking at fuel poverty as a Mr McDonald: I must apologise I do not. However, we do operate, as you say, in other countries. If you wish we will look into that and supply a written report. Q133 Chairman: It would be very helpful. I do not know if you have anything to add on that point, Mr Smith. Mr Smith: No. The German market is very different to the
market in the Q134 Chairman: Should the focus in dealing with this matter from the government's standpoint be on income, because what we are talking about is a ratio between people's incomes and the price or the amount they spend on energy? You could be in an absurd situation of still having people in numerical fuel poverty even though they were living in totally beautifully insulated homes. Should the emphasis be on raising the income or dealing with the energy aspects either by price or efficiency? Chairman: What I will say to all three of you, as your first piece of homework if I may give that to you today, is would you be kind enough to very rapidly send us what the agenda for the first meeting of the fundamental review should look like. What would be on your agenda and who would you invite to come around the table to conduct the review, obviously including your good selves? Q135 Lynne Jones: In terms of the input that your companies can give to such a review or to the road map, as Mr Smith referred to it earlier - I do not know whether that was just your own terminology but it was something that our witnesses on Monday raised - have your companies made any estimate about what order of magnitude of expenditure needs to take place to meet the government's targets both in terms of eliminating fuel poverty amongst, first of all, vulnerable households and then households in general? Mr Smith: I am not sure that our company has done that. What we have done is we have looked at the FPAG 2007 report that estimated that in order to eradicate fuel poverty you needed to spend in the order of £1 billion per year from now until 2016. I think that was clearly based on lower prices so that will have gone up significantly. Q136 Lynne Jones: That was just on Warm Front. Mr Smith: I would have thought it was more than Warm Front if it is to eradicate fuel poverty. Q137 Lynne Jones: With CERT we are spending that sort of figure. Mr Smith: Absolutely. In terms of the companies, the total financial commitment in energy efficiency and fuel poverty alleviation that the vertically integrated companies and generators are going to do over the next three years is closer to £4 billion. We do believe that we are playing our part in funding many of these measures and we need to look and see how we can get a more joined up approach with government on some of these issues. We have talked about some of them already in terms of increasing the Warm Front budget for future years and simple better targeting of the Winter Fuel payment to those who need, it and possibly improving the processes to ensure that the estimated £10 billion per annum from income-related benefits is actually paid to those who need them. There are those fairly straightforward issues that can be dealt with on the income side which would also be a good way of addressing some of the fuel poverty issues. Q138 Lynne Jones: The companies are contributing through CERT, or perhaps more correctly your customers. We know that the reason the government's fuel poverty targets are way off course is because of the huge rise in fuel costs. Although there has been a huge rise in fuel costs there has also been a huge rise in the profits of your companies. Are your companies doing enough? Clearly we have to gear up in this area to a higher order of magnitude than we are currently spending if we are going to achieve those targets. What more can the energy companies do? What scope is there from the money you are making, or appear to be making, to actually do more? Mr McDonald: Could I just pick up on one point from an E.ON viewpoint? From the point of view of profitability, our profitability is 25 per cent down this year as opposed to up and as a retail division we will not be reaching money from that. Q139 Lynne Jones: What about the year before? Mr McDonald: That, in essence, is what I am saying. I do not want that to detract from the correct sentiment that you are making. Can I turn round to what we are doing? There is a huge investment and we are probably not particularly good at getting out there to say exactly what we are doing to help. That does not mean to say there is a lot more, of course there is, from that. From an E.ON perspective over the next three years we will spend between £450 million and £500 million on the insulation on CERT. This year there is a three-fold increase in terms of insulations and we are very much trying to target those who are most at risk at this point in time. We have also committed £56 million over the next three years in terms of social programmes to try to alleviate those most at risk of fuel poverty. Over and above that, we have particular measures through Age Concern on Winter Fuel Payments through them and particularly social programmes that sit behind that as well. It is very difficult for me to give you an answer to say is that enough; all I can say is it is a huge amount from that perspective. Q140 Lynne Jones: Centrica has historically spent more on this area of poverty measures. Could you comment on the question? Is it enough and is the money that your companies are spending on these various schemes coming out of your profits or is it being re-charged back to the customers? Q141 Chairman: That is a lovely way of dancing around the problem. Q142 Chairman: Let me ask you the specific question that goes to the heart of what Lynne Jones was getting at. In terms of the costs you had to bear to meet your various commitments under EEC1, EEC2 and now CERT, in cash terms and the expenditures that you made to meet those obligations how much has been re-charged back to the customer through their bills? Q143 Chairman: That was not the question I asked. That is a wonderful plea for problems in the retail energy field but the question I wanted to ask was how much money have you spent. To meet those obligations it has cost you something and the question was how much of that expenditure for EEC1, EEC2 and now CERT and other programmes has actually been charged back within the bill to the consumer? Lynne Jones asked the question: how much has come out of your profit, in other words off the bottom line, and that bit is what you have not charged back to the consumer. Q144 Chairman: I can ask the question. Q145 Chairman: No, I would fundamentally disagree with you. The cost of meeting the obligations which the government has set energy companies is a cost to your business. We are agreed on that. If it is a cost to the business, it goes into your P&L on the same basis as any other cost and you have to decide, as a corporate entity, how to deal with it. Do you take it as a cost, of which I presume it is allowable against tax as a business cost, and thereafter what remains do you charge it back in the price of the produce to the customer or do you allow your shareholders' return to be diminished by bearing that as a cost to the business? What is the strategy? Q146 Chairman: But you charge back in the cost of the product. The transmission and the distribution go back to the customer as part of the price of the product. Q147 Lynne Jones: And what prices you can get away with. Q148 Chairman: There must be an expectation in terms of your pricing strategy. You, like any other retail business, have to work in a competitive market-place and the market-place determines the parameters within which you can set your pricing for whatever offers you make to your customers. At the end of the day you earn an income and some of those out of the income effectively repay the costs of doing business and at the end you hope you will have a margin which ends up as your gross profit. Nobody would disagree with that. There may be, and we do know from what Ofgem have told us, that there is a charge back to the customer as part of the price the cost of meeting some of these obligations. I am asking you, straight forwardly in your case, what is it? Q149 Chairman: That is a bit vague. Q150 Lynne Jones: Q151 Lynne Jones: Perhaps the question should be addressed to the business as a whole. If the retail is the loss leader but you are making loads of profits in the wholesale area then it is still the same company. Can you answer questions about how the wholesale business allocates its prices? Are you able to make larger profits at the wholesale business on the basis that you are immune from the kind of questions that we are asking today? Q152 Chairman: I guess your wholesale must sell to the retail business and the wholesale business makes a margin on its sale to the retail business. Nobody minds people making margins up and down the chain within the company but somewhere along the line the cost of meeting these obligations has got to be met by somebody and it is either being met as part of the price which the customer pays for the energy. We have had lots of evidence that talks about the regressive nature of people, particularly on lower incomes, effectively paying for their own energy efficiency. I am trying to establish from your standpoint, because you said we have got to do more, whether "got to do more" means "we would like to put some money out of either the retail or the wholesale part of Centrica into the pot and do more over and above paying our way to meet our EET, CERT, et cetera, obligations." Within those two I wanted to know whether it was 100 per cent cost pass back to the customer of meeting your national obligations over and above what you might do as a benevolent supplier realising you have wider social obligations. Could you tell us specifically what the answer is to those questions? Q153 David Taylor: What proportion does that £90 million represent of your domestic revenue? Q154 David Taylor: The income you get from domestic customers. Q155 Chairman: If this causes you some pain, let me ask you perhaps you may want to go away and write to us about it. If I was a shareholder at a meeting and I stood up and said "One of the costs of the company is meeting these obligations, could you tell me how it is met? Does the customer make a contribution to meeting those costs?" Somebody like the finance director would be able to answer that question and you are struggling to answer it at the moment. Q156 Chairman: We can ask the question with great simplicity but what I am worrying about is the answer. Q157 Lynne Jones: Could I ask the other two gentlemen, are your companies involved in the wholesale market as well and could you comment on this issue as regards how the expenditure on CERT is actually financed and whether you pass it on to the customers? Mr Smith: I would like
to make a comment that we could get into difficulties if we get into too much
detail. We should not forget that apart
from the fuel poverty targets we have, as I said at the start, we have other
targets one of which is an 80 per cent reduction in carbon. In order to deliver those we are going to
have to replace aging fossil fuel and nuclear plant over the coming years. By 2020 we will need to build at least 20 new
power stations to deliver the low carbon future. As a company nPower would be spending or
investing significantly more than it earns year on year for the next ten
years. We are very pleased that our
parent company in Mr McDonald: I only have retail responsibility so I could not comment on the wholesale. I apologise for that. Q158 Lynne Jones: You are spending that money in the future but you have made huge profits in the past. There is a big call for some of those profits to be taxed in the form of a windfall tax to make sure that it is spent on relieving fuel poverty. Would you care to comment on that? Mr Lane: I would comment that in terms of excess profits arising from the free distribution of carbon emissions allowances into the market we have been supportive, probably as a lone voice over a long period of time, for every tonne of carbon that is emitted by a power station to carry a cost and for that cost to be borne by the power generator that emitted that CO², and the revenue that accrues from the sale or auctioning of those emission allowances should be used in areas of fuel poverty or delivering low carbon or zero carbon technology. Q159 Lynne Jones: What about the free allowances that the energy companies are going to get under the next phase, something like £10 billion? Q160 Lynne Jones: I am talking about phase 2. Mr Smith: From our perspective there has been a huge amount of debate about windfall gain. I would say we do not necessarily agree with the alleged windfall gain. Q161 Lynne Jones: I take that as read but why? Mr Smith: As a vested company we inherited a fleet of high carbon emitting plant from the CGB and in fact to just continue with our normal operations we now have to buy allowances in order to do that so we are already buying allowances. We do not have enough to operate with the fleet of plant we have. One of the key issues is we need to move from this position and develop a portfolio to a position of low carbon electricity supply in the future. I might throw it back and say government also gets free allowances and perhaps it might be more appropriate for government to use the free allowance it will receive into fuel poverty initiatives. Q162 Lynne Jones: We will have the Minister and no doubt we will ask questions to her but we are asking the questions to you. What about E.ON? Mr McDonald: As Alan was saying, from that point of view we are looking at a huge investment over the coming years to replace some of the existing generation of fleet that currently exists. We are looking to invest £1 billion per annum from that viewpoint. What we would seek from that viewpoint is stability of investment from that side. We, the same as Alan, have to go to our parent for the investment money and we would certainly seek the stability of the environment around that in order to get that investment money in order to invest £1 billion per annum into the foreseeable future. Q163 Miss McIntosh: On the Winter Fuel Payments, if I could turn to E.ON first, you seem to think that the Winter Fuel Payment is an appropriate response, in your memorandum to the Committee, and you talk about energy efficiency and help for the elderly over 60. Do you really think the Winter Fuel Payments, as currently drafted, are targeted at those most in need? Mr McDonald: No, I do not. In all fairness, and I will not try to quote verbatim, our response was attempting to say that the Winter Fuel Payment, in essence to increase the income for the elderly in that sense, is actually the correct methodology in that. I think it can be improved, and improved targeting, so that we optimise the Winter Fuel Payment to those most in need, I would certainly encourage from that viewpoint. I do think the real sustainable element however is to improve the energy efficiency. Again I think there is ultimate targeting needed in everything we do to really focus down on what is most needed. Q164 Miss McIntosh: Do you think sufficient resources have been made available to tackle fuel poverty in itself so that Winter Fuel Payments again are not particularly relevant in the way the targeting is done? Mr McDonald: To be honest that is probably a question for government in that it is their responsibility to look after the inflow of money from that. I come back to a point I made earlier about responsibility and capability. We have, as energy companies, that capability to focus down on the energy efficiency and to create sustainable energy efficiency going forward which has to have a huge impact on fuel poverty going forward. Q165 Miss McIntosh: Mr Smith, what impact do you think targeting Winter Fuel
Payments only at those over 60 who are fuel poor would have on fuel poverty
levels in Mr Smith: We figure that if it was targeted solely at the fuel poor and paid directly onto the fuel bills it would take approximately 4 million households out of fuel poverty. We do accept that recasting that might be politically sensitive but if government is committed to reducing the numbers maybe it should be reconsidered. I would agree with Jim that it is the refocusing of the Winter Fuel Payment that is the most important thing to do. Just in the way that it is done, the Winter Fuel Payment is paid to pensioners who are living abroad, to those who pay a higher rate of tax and to those who would not be classed as fuel poor. It really does need to be refocused and, as we have said, if we look at these things, if we have a road map that puts this issue alongside the issue of carbon reduction and alongside the issue of the renewable energy, we will be able to set out a road map and put resource and an allocation of budgets to those. Q166 Miss McIntosh: How would consumers view the divergence of the Winter Fuel Payments from their pockets directly to the supplier's bank account which is what you would propose? Q167 Miss McIntosh: Have you made representations along these lines to the government? Q168 David Taylor: Early on, Q169 David Taylor: The recent adoption in the Climate Change Act of an 80 per cent target for reduction in a sense becomes a force majeure which will control and constrain other things that governments might want to do. Do you think it means that therefore energy efficiency programmes will focus predominantly, if not quite exclusively, on carbon reductions without necessarily doing very much to address fuel poverty? Q170 David Taylor: On a slightly different tack, do you believe there is a need to fundamentally restructure supplier obligations post-2011 to reflect the kind of changes that are taking place? Mr McDonald: Absolutely. The most sustainable solution is through
energy efficiency and CERT, and EEC before it, has been very successful in
achieving the objectives set out from that.
Any short-term solutions will be just that and they will be annual
solutions from that viewpoint. The
absolute focus we have in the housing stock in the Q171 David Taylor: Can I put to Mr Smith, as a spokesman of all three of you in a sense, that if the supplier obligation is restructured in a year's time and if it had two main themes of focusing on fuel poverty and reducing emissions from households, is it not inevitable that where you have two objectives which are not necessarily consistent with one another that you are riding for a fall and likely to fall short on both? Mr Smith: That is
possible. We have said all along that
with some of the schemes we have in place at the moment there is this tension
between fuel poverty and energy efficiency and that is why we made it very
clear that fuel poverty must be separated from that. As we move forward, as Q172 David Taylor: Q173 David Taylor: That will cost you between £1 billion and £2 billion by the end of this year. Is that the right figure I have for the Council tax scheme? Q174 David Taylor: The individual projects and co-operation straddle between public and private sector sometimes. Is that not inherently inefficient where you get overlap and extra cost? How can we better join this all up? I know it is not your responsibility but we have CERT Warm Front these energy saving programmes and there will be others that we will roll out over the months that lie ahead. How can we get a tighter grip on this and make people work more quickly with a minimum of overhead and waste? Mr Lane: The Here to Help schemes and the Council tax rebate schemes have been very cost efficient and run in a way that has not required a massive administrative overhead from our point of view. I think the broader point that there are a number of different initiatives which will now include the Community Energy Saving Programme as well takes me back to the previous point that it will be sensible to take stock of all the range of initiatives and see if they interlock well or whether there are ways that efficiency can be improved as part of a strategy review. Within that the interactions that we have had with Councils and other local agencies have not been incredibly burdensome for us. Q175 David Taylor: Have any of you or colleagues had any contact or knowledge with the Community Energy Saving Programmes that exist in Councils such as Kirklees which is seen as a flagship. Could you pass an observation, and I am not expecting detail, as to whether or not that is something that could be rolled out into other areas? Mr McDonald: We have had
some very successful schemes, Kirklees being one of them, similarly with Devon,
David Taylor: To me it seems that an area-based programme rather than a project-based programme is more likely to get more complete coverage and less overlap. Q176 Lynne Jones: Very quickly, Mr Lane: The Green Streets Programme has been very successful in raising the profile of energy efficiency through the local media coverage that it has received and that has been very valuable but the two specific additional learning that I would mention are, one, that above and beyond the physical measures that have gone in, behaviour changes has been a big proportion. We cannot break it down to exact numbers because that is not possible but it is clear, from talking to the householders on the eight different streets in the eight major cities as I have done, they have significantly changed their behaviour in all sorts of little ways. All the little things like not overfilling the kettle, turning lights off when not in room, turning down the thermostat, do seem to have persisted over the year. We are going to go back again and again to see if people re-adopt their old behaviours or whether it sticks so I think that behaviour change component is important. The other thing which is more important is the sense of community that has been created by people acting more effectively together around delivering energy efficiency, and the response to climate change has been very valuable in the whole being greater than the sum of the parts. These people have been able to learn off each other and educate their communities in a way that increases greatly the amount of energy efficiency but also the working together has helped recreate a sense of community. When you talk to any of the householders they always say "It is fantastic. I have got to know my neighbours now." That two-way interaction of people working together and being more effective together and getting closer as a community is something that is very powerful and potentially replicable, and DCLG are certainly interested in what we are doing. Q177 Lynne Jones: It is another argument for having area-based schemes, is it not? Q178 Chairman: How did you select which eight households in each of these eight cities were going to be part of your green streets initiative? Q179 Chairman: You will not be swamped if, as a result of the evidence getting out now, lots of local authorities rename entire streets green and expect you to come and sort them all out. Are you ready for the rush? Q180 Mr Drew: If government was to come to you and say we know that the problem of this whole area of energy efficiency, fuel poverty and climate change reduction is too complex. We have our schemes, you have your schemes, let us cut through all this and do things on an area-based basis, has that happened? Should it happen and, if it did happen, how would you respond? Mr McDonald: It is a very fair question. Again I would come back and, if I put myself in the customer's shoes, as a customer what I would expect is everyone making the opportunity to involve me in any way that I can move out of fuel poverty or indeed improve the energy efficiency of my housing from that. Any opportunity that we have to target down in a community-based principle or indeed in a wider and local authority-based principle and utilise the information that exists in that community or that local authority to better target the efforts can only be beneficial for all of us. Mr Smith: I do not have anything to add over and above that. Q181 Dr Strang: I think the Committee is bound to accept the government's definition
of fuel poverty at 10 per cent. You
said, Mr McDonald: I would be happy to pick it up if I may. There are two separate issues and I will cover them separately. In terms of the hand-held device, we had a proposition last year that went out to 150,000 offering free hand-held devices. Q182 Lynne Jones: Is that under CERT? Mr McDonald: It was not; it was a separate proposition entirely. It was an energy saving campaign linked to a specific website. I probably do not have the time to go into that and I apologise. The key point is ensuring that the customer is engaged and wants to save energy in the first place. What we absolutely found is that to do a blanket distribution of these units would not help, and on the feedback we have had on the 150,000 it does not. The key point is if you can engage the customer that would bring you onto the smart meters as well which is fundamental. I think any help you can give to reduce that planning process I think smart meters are the right for an industry to do. They are helpful to customers and we have spent £12 million in consultation with Ofgem on smart meter trialling. Certainly the results we have found on that, linking smart meters and the hand-held device, I think people are far more aware of what they are using and if people are more aware of what they are using they are more engaged to use less of it and therefore move forward. I would stress I think the smart meter delivery is far important than the hand held device. Q183 Dr Strang: David was implying when talking about joining it up that the retailer or the supplier is at the sharp end and maybe you are the people who should be really giving the lead and getting in there and working with our consumers. Is that a fair observation? That may be the government's policy. Mr McDonald: Could I give a quick reply on a project that we have going on at the moment, which has already been mentioned in the House, on Kettering Borough Council. We are introducing smart meters into a number of customers' homes and Kettering Borough Council will give a rebate to those customers who actually achieve an energy efficiency target. That sort of working together between local authorities and energy suppliers from that point of view can make a difference and speed up implementation and make sure that people are engaged in the process as well. Q184 David Taylor: Can we finish off on data sharing? Gavin mentioned information from the DWP. Against a backdrop where we have seen in recent months data disks lost in the post with the details of tens of millions of families on, we have seen memory sticks with At Risk children's addresses on left in cars, we have seen left on the train at Teddington no doubt the plans to invade Tehran, or whatever it might be, or other sensitive data of that kind, and of course the newspapers react with a range of headlines from the synthetic to the splenetic, the electorate are pretty sceptical about the public sector's, as they see it, ability to keep data secure. Is the private sector any better? If we were starting to share data on a grander scale, and I guess your sins and errors will not hit the press in the same way as the government's will, are you any better? Can we trust you are with data and can you trust us? Q185 David Taylor: All government ministers say that. All MDs of private sector companies say that. The person observing the debate all they can say is the Mandy Rice-Davies comment "They would say that wouldn't they." Do they deliver on it? It is not at all clear that people's data is being held or transmitted in a secure way, is it? Q186 David Taylor: It should not be sensitive and vulnerable to exchange of data about properties, should it? Mr McDonald: I do not think it should be. I have two pleas if I may: one, let us not bite off more than we can chew and let us keep it to a sensible amount of data. Let us ensure the process of transfer works and let us ensure that the security element works before we widen anywhere beyond that. That would be my plea number one. The second thing would be if we actually had customers sitting here right now who could benefit from this I think they would be looking at us and saying "Guys, just fix it." Come up with a solution, target appropriately from that point of view and let us get on and do it. Those would be my two elements. Q187 Miss McIntosh: Mr McDonald, you mentioned in the longer term owner occupiers should be responsible for their choice of housing, and presumably within that energy efficiency and heating. What about tenants because they tend to live in the poorer housing? Mr McDonald: I think that
is a big issue even including within CERT.
It is very easy to make contact with the customer who is actually using
the energy, either gas or electricity but it is much more different to get to
the tenant from that. It is always,
being honest about it, less beneficial to the tenant than it is actually to the
people who are in there. There is work
that has to be done around there and we all have a part to play in it. I do not have an answer for it today but I do
think it is something we should focus down on because we are not going to
improve the quality of housing within the Q188 Miss McIntosh: What elements in the supplier obligation post-2011 would you particularly like to see? Q189 Miss McIntosh: If the supplier obligation was significantly different to CERT, how can you learn from CERT about tackling fuel poverty within such utility-led programmes? What can we learn from CERT? Mr Smith: I thought we had already covered that. Q190 Miss McIntosh: The supplier obligation you are very happy with? You do not think the supplier obligation will be entirely different to CERT. Mr Smith: I think it will be different to CERT. This is the point we raised earlier on, going from an inwards-based approach towards a more outwards-based approach. Q191 Miss McIntosh: Micro-generation, looking ahead to that, how do you think that can be given a greater role in reducing fuel poverty? Mr McDonald: I have to say
the flex scheme that exists within CERT is an extremely good move forward. We have recently installed our first ten
ground source heat pumps under that particular programme and I think that
certainly helps. We have about 1,000
ground source heat pumps installed throughout the Q192 Chairman: How do you make it pay? Ground source heat pumps are £3,500 to £4,000 a time. Mr McDonald: You have hit the nail on the head. The priority flex element within CERT, which allows a 270 per cent uplift if you are actually replacing a non-mains gas situation or heating situation, allows you to get that out particularly if it is in the vulnerable category. It is a move in the right direction but there is certainly more that can be done off the back of that. The key point is, and you are right, and this applies to solar photovoltaics, et cetera, the pay back on those to the majority of the population is just way too far at this point in time. Q193 Miss McIntosh: Presumably with new build, the same as they are doing with these houses we have seen in Wembley where they are putting the new waste in, what I do not understand is they have been doing this in Scandinavia for years, taking energy from waste projects and combined heat and power schemes and putting industrial and household waste plants next door to new developments, but I presume it is only economic to do it with new developments and difficult to do with existing. Mr McDonald: I am not person the give an exact answer on that but it is important to work with house builders to help them achieve the zero emission element of new housing at the appropriate time from that. We have started that work with Barratts. We have it fairly well established in ten different areas with about 1,000 houses so there is a part for all of us to play in that. Q194 Lynne Jones: On feed-in tariffs, the current proposals limit the amount of energy that can be generated by a community to I think it is 3 gigawatts, possibly now going up to 5 gigawatts. What is the energy company's view on that, because most of the renewable energy NGOs believe that is too low and it should be at least 10 gigawatts? Q195 Lynne Jones: It might eat into energy companies' profits too much. Q196 Lynne Jones: At the moment. Mr Smith: There is also
a subtle difference between a feed-in tariff in the renewables obligation, in
that the renewables obligation is a premium payment and the feed-in tariff is
effectively a subsidy so you are guaranteed getting that money. With the other one you are exposed more to
the market. As Q197 Lynne Jones: Would 10 be a problem? Mr Smith: If anybody is making an investment on a renewable scheme and it is in the scale of megawatts, then they should be very capable of working within the renewables obligation as opposed to getting the guaranteed subsidy. I think 5 is a figure that the industry has got itself comfortable with and I do not think there is a case for it to be raised higher. Chairman: We will draw stumps at this stage. Thank you for answering our questions and for your written submissions. There are one or two things where you very kindly said you would write to us again. If upon reflection there is anything more you would like to write to us about, we are always glad to hear from you. The only thing that cannot be undone is that which is on the record that you have said. Thank you. Witnesses: Ms Sarah Harrison, Managing Director of Corporate Affairs and Mr Charles Hargreaves, Head of Environmental Programmes, Ofgem, gave evidence. Q198 Chairman: We welcome our second set of witnesses. I am sorry our previous session overran a little bit. When you are on a voyage of discovery you never quite know where you are going to pitch up. You can see we were probing one or two areas with some thoroughness. Can I welcome, on behalf of the regulator, Ofgem, Sarah Harrison, managing director, and Charles Hargreaves, the head of environmental programmes. One of the flavours that came out from our earlier evidence, some of which you may have heard, is a feeling that we have met something of a watershed. Our earlier witnesses said there needed to be, at this moment, a fundamental rethink about the approach towards fuel poverty issues. That was not to say that some useful work had not already been done, that was not to say that existing programmes were not capable of contributing towards the problem but I think they felt that efforts needed to be refocused. How do you feel, as an organisation, about statements like that, bearing in mind we do seem to be on an upward trend with reference to the number of people, by our current definition of fuel poverty, who are within that category? Ms Harrison: You will find in our own written submission we have also made the point that it is a good time to take another look at the strategy. Perhaps I could go back to some suggestions that Ofgem itself made to government in 2006 in response to the Energy Review and return to some of the ideas which we still think bear consideration today; the first relates to the range of different schemes and measures that exist. In 2006 we argued for government to think about whether there was scope to pool the resources of some of those schemes and to look to create a function to centrally administer them for two reasons: one, to look at ways of making sure those schemes worked in synchronicity with one another and complementing one another; and the other issue being, from a customer and household perspective, to make sure those measures and schemes were well understood. The second principal point to be made again in 2006, but certainly relevant today, is the central challenge of targeting and identification; we dubbed it a find and fix approach. We are very pleased to see some progress has been made in relation to data sharing. We think this remains a central challenge and would certainly encourage government to look at ways in which data can be made available, with all the appropriate protections - and I note some of the comments that came out from the earlier session on that - to really target help effectively. If I could give one small example of a find and fix approach and schemes working together, when Ofgem hosted, in April of this year, a fuel poverty summit, led by our chairman John Mogg, the whole objective of that was to try and see what could be done, very practical actions, to better target existing help to households most in need. One of the schemes and trials that came out of that was a partnership between suppliers and EAGA. Where people are in households giving advice on Warm Front measures, giving advice on benefits entitlement, as the EAGA scheme allows, they were also prompting that householder to think about approaching their supplier to get tariff advice. The trial has been running, and has just come to an end, targeting 3,000 households and has been very successful in terms of householders approaching suppliers and looking for further tariff advice and, in some cases, moving on to better tariffs or indeed social tariffs. That is a modest example, but for us a very good example, of where the need to bring schemes together to have a more holistic approach really can bear fruit. The other slightly nearer-term issue I would like to highlight for the Committee is given the fundamental challenges of fuel poverty incomes, energy prices, housing and energy efficiency, from an incomes' perspective it still is extraordinary that in terms of benefits uptake we have some £6 billion to £10 billion of unclaimed benefits. I know there has been some relatively recent research done on this by Help the Aged who identified that over the lifetime an older citizen could be entitled to up to £50,000 of unclaimed benefits. There is a very near-term issue, particularly as we face the very obvious challenges of this winter, of seeing what more could be done to improve benefits uptake because that will increase the incomes available to households and help to face the challenges of rising energy bills. Q199 Chairman: You provide us with a very helpful background, and in terms of the effectiveness of some of the programmes we will come on and ask some questions in more detail so I will restrain my enthusiasm for following your well-placed analysis. I would like to ask about Ofgem because your principle remit has been about securing competition, if you like, overlain by environmental and social policy. The Secretary of State in his recent remarks seems to be taking some issue and perhaps raising the question as to whether all these competitive mechanisms have served customers well and serving notice that dealing with the fuel poor is going to be an important priority of the new department. Do you think, in the light of my question and the remarks of the Secretary of State, this means Ofgem will have to consider how it balances its response to the different things for which you are responsible? Ms Harrison: My first point is that Ofgem's principal objective is to protect customers, and to protect customers wherever appropriate through the promotion of competition and where not through regulation. Parliament has very recently revisited just this issue and has given Ofgem, in some respects, a fresh mandate confirming that should remain its principal goal: the protection of customers' interests and where appropriate promotion of competition and elsewhere through regulation, but customers in a sense of both today's customers and future customers. Parliament has also raised up the hierarchy and given more prominence to our role in respect of sustainability and we very much welcome that mandate. What is very important against the background of the goal to protect customers' interests is we see there are a number of things for us to do: first of all, coming back to the question of fuel poverty and thinking about the contribution of high energy prices in relation to fuel poverty, it very much is to ensure that the prices that energy customers are paying are fair in the sense of reflective of cost and are no higher than they need to be. We do that through exercise of our powers as a competition authority and indeed through our more bread and butter work of setting the revenues of the monopoly businesses to allow them to invest in infrastructure and to secure value for money for customers in that process. We see very much the challenge in relation to making the competitive markets work effectively for customers as a key issue. Of course we have spent the last few months doing a very forensic look at the way in which the energy retail market is working for customers. While we have found in some important respects it is working well and there is no cartel and we are satisfied in a number of respects, we have found that it has fallen short of working well for some customers, customers on pre-payment meters, customers who are off the gas grid for example. There we have put out some detailed proposals that we are testing, and have just completed that testing process, as to how we make those markets work more effectively on behalf of those households. In that respect we very much share the Secretary of State's goal to reassure that the market is delivering very effectively and fairly for all customers particularly for those who are vulnerable and facing fuel poverty. Q200 Chairman: In pursuance of your duty to the customers as a collective group,
and the analysis that you have just told us about and the findings, do you look
company by company before you aggregate your findings on an industry-wide
basis? I am not asking you to name and
shame, nor I think would you, any particular companies but is there a spectrum
of performance, particularly with reference to the energy poor, in terms of the
companies who supply energy to the Ms Harrison: We would fall short of producing the league table but I would say we do see it, and indeed we do, as very important to shine a light on what the companies are doing in this area. The reason for that is the costs that support many of the companies' initiatives are borne by customers and therefore we think it is important that is made transparent. To give you an example, a couple of years ago we produced our first social monitoring report which set out the breadth of measures that companies were pursuing and tried to quantify the value that was bringing in monetary terms rather than outcomes. Government of course took a decision earlier this year to require companies to step up their spend on social programmes by £225 million over the next period until 2011 and asked Ofgem to continue that reporting role under this new scheme. Q201 Chairman: I want to ask you something. I do not know whether you were here for the earlier exchanges but I was trying to establish with Mr Lane from Centrica how much of their obligations, if you like the costs of doing things they have to do like CERT, EEC and so on, they actually got back from the customer. I am afraid he was unable to provide a clear answer for his company what it cost them and how much they got back, yet I note from your own evidence you say there are some Defra figures which show that CERT and the equivalent adds £38 a year to the average customer's domestic bill. You could not have invented that figure and it must have come from an accumulation of data. Do the utilities supply either to Defra or to you or to the new department what they are actually spending on doing this in terms of meeting their obligations? Ms Harrison: £38 pounds is a figure from Defra. I might ask my colleague to comment on the genesis of this. Q202 Chairman: It was in your evidence. Ms Harrison: It is absolutely a figure and it is a cost to householders and of course that will increase with the new enhanced CERT and the new Community Energy Savings Programme. In terms of the social programmes that suppliers produce, the social tariffs and various advice services, what we try to do in the report I was referring to earlier is put a monetary value on those. I will have to confirm this to the Committee but our analysis at the time we thought the value of that, in our first report, equated to roughly just over £1 per customer. Q203 Chairman: The reason I am asking that question is as part of his attempt to
answer my question Ms Harrison: I think the answer to that is no; that is not something we would look at or indeed judge. What we think is important is they are transparent to customers and to householders on the elements of the typical energy bill going towards contributions to these schemes. They bring benefit in terms of increased enhanced energy efficiency measures, if we are talking about CERT, into the home but that is one of the reasons why we also take the view that schemes such as CERT, given the fact that it is a cost being borne by the customer, ought to continue to have a priority group element, in other words fuel poverty and its consideration ought to continue to be a feature of those schemes. Q204 Chairman: Part of the public's concern is we have seen in the energy industry as a whole, at a time of rising energy raw material prices and rising gas and oil prices, that by the public's appreciation some of the energy companies appear to have made very substantial increases in their overall levels of profitability whilst at the same time the pain is being taken by customers who are having to pay substantially more for the product of energy. Therefore people will not unnaturally ask the question if they are making all this extra money why can they not help us bear some of the pain. Questions of windfall taxes and other devices have been discussed as a way of evening things out. In this context the question would be: is there more potential within those companies who have complete control over the supply chain to be doing more to help the customer cope with higher energy prices by doing more over and above, for example, their current obligations under CERT in terms of energy efficiency programmes specifically targeted towards the energy poor? Ms Harrison: First of all, on my theme of transparency, it is important that households and customers are aware of how the costs are attributed and borne which is why, coming back to our energy supply probe, one of our recommendations for remedies is that companies should produce more financial information and do more regular financial reporting so that it is much clearer how costs are being transferred through the business. I come back again to my second point which is that it is not, in our view, for Ofgem to judge what contribution different businesses should make to meeting these objectives but if there are costs that are being borne, and indeed they are ultimately being borne by customers, then it is important that they are, first of all, as efficiently incurred as possible and, then the second question that raises, there comes at point at which are these costs and measures that should be funded through a market mechanism and therefore through customers or is it more progressive to look at approaches to funding support through the taxation process. That is a slightly fundamental debate that sits behind some of this. Q205 Chairman: As a proportion of the energy bill, do you have a measure of reasonableness of the costs that the consumer should bear meeting programmes for energy efficiency which is determined by the government? Ms Harrison: No, we do not have a view on that figure on that proportion. Q206 Lynne Jones: You did say a few moments ago that the Community Energy Saving Programme is going to add on to the £38, which is the average cost reckoned by Defra for charging back onto the fuel bills. Are you not tacitly assuming that it is justifiable for the energy companies to actually recharge the expenditure under that heading to their customers? Ms Harrison: That is a judgment for the energy companies. Coming back on that, certainly our assessment at the moment is it is about £38 cost on the customer's bill for the existing schemes. Q207 Lynne Jones: You said it was not your assessment but Defra's? Ms Harrison: It is Defra's analysis that we have reported in our evidence to you. I am aware certainly that when the energy suppliers agreed to the CESP and enhanced CERT arrangements it is a matter for them, and between them and government, quite what and how any of those additional costs would be fed back through to customer service. If the arrangements as they exist at the moment of £38, and if there are going to be further enhancements made to those schemes, then it is a fair assumption that those additional costs will be passed on to customers. Whether there is any separate arrangement that exists between energy suppliers and the government as part of securing those enhancements, those are questions best put to either businesses or to government itself. Q208 Lynne Jones: I am surprised you say it is a fair assumption. I would have thought you would know how the £38 is derived. I would like to know from somebody, either you or Defra, where they got those figures from. Surely your market analysis should tell you to what extent the energy companies are making excessive profits and where it would be reasonable, if they are making excessive profits, to actually fund these kinds of schemes themselves. Mr Hargreaves: On the £38 figure itself, as part of the impact assessment for the CERT scheme Defra put in place some analysis to evaluate the numbers major suppliers would be expected to install throughout three years of the CERT programme, the cost that would be expected to be borne by those suppliers for those measures: those that are in the priority would be expected to be paid full cost by the suppliers; to those that were able to make a contribution it would be funded at about the 50 per cent mark. They did the analysis and came out with a figure of £38 per customer per annum over the three years of the programme. If I could go back a step and say that Defra have undertaken a similar analysis for the EEC1 and EEC2 programme. Following those programmes they have asked someone to undertake independent research of those programmes, and their independent review of those programmes have suggested that suppliers have been able to comply with their obligations at roughly 20 per cent below the cost estimated by Defra in their impact assessment for the programmes. Q209 Lynne Jones: Is anybody assessing whether it is fair to charge the customers for the cost of the programmes? Earlier on, Ms Harrison, you said something about we would like to get more information from the energy companies. I was really surprised at that because I thought you had the right to demand all the information that you would need in order to find out whether the energy companies were acting fairly and in as competitive a way as possible in terms of the costs that they charge their customers. Ms Harrison: On that point we do have powers that we use in our energy supply programme exactly to get all the detailed information that we need from companies so we absolutely have those powers to gather that. My point is in relation in our probe remedy we think there is scope for more financial information to be published, to be made publicly available, and that is what we propose so it is much more transparent and obvious how costs are actually being borne and shared across the different aspects of the energy businesses. Q210 Lynne Jones: This is information that you have that you want to be made public. Ms Harrison: What we are doing now is we are working with companies to look at what additional information should be put into the public domain in terms of public reporting on what the different costs are as they flow across the businesses. Q211 Lynne Jones: You have all the information but you blithely said that it is reasonable for them to pass on the costs of the CESP onto their customers and I am concerned about that. Are you doing everything you possibly can to ensure that the energy companies are behaving in a fair way towards their customers, not just as between different categories of customers, which is crucial, but also overall? Ms Harrison: I can absolutely assure you on that. Q212 Lynne Jones: Again, you would say that. Ms Harrison: Let me explain what I mean. One of the principles that sit underlying our energy probe and the recommendations we are making has been to look very forensically at what the different tariffs are, for example what different energy suppliers are charging and are we satisfied that they are reflecting the costs that underlie them. As part of that process we use powers that are available to us under the Enterprise Act to gather tremendous amounts of information in order to be able to get under the skin of this. That is not something using those powers that we do on a routine basis, although we do routinely monitor and look at the market. Our judgment in relation to our energy probe on that is that we think in some respects the prices that have been charged by the suppliers to some customers are unfair in the sense that the differences between one set of tariffs and another is not sufficiently justified by the cost, which is precisely why we are looking at and have posed the question and are now taking the responses from consultation in judging what next steps to take as to whether or not there are additional actions that need to be taken to make sure those prices are fairly charged. Q213 Lynne Jones: It has taken a long time, has it not? The extra costs being charged to pre-payment meter customers, for example, has been an issue that, certainly in this place, has been raised for years. Why has it taken Ofgem so long to get to grips with these issues? Ms Harrison: There are differences in the costs to serve different groups of customers. Pre-payment meter customers cost more. Our concern is whether the differential that has opened up, for example between a direct debit customer. Q214 Chairman: The question Ms Jones asked is why has it taken so long not what is the mechanism of the tariff. Ms Harrison: My point is the differential that has opened up has widened over the course of this last year. What prompted our probe was seeing a much more widening differential between those tariffs which prompted us to look at this and ask is that justified or is that beyond cost. What we found on pre-payment meters, and what our evidence and our analysis in the probe shows, is that while on average those differences are broadly reflective of cost they were not for some suppliers. There I would cite in particular a couple of suppliers who are outliers, and that was British Gas and nPower. It has been good to see the very recent announcement by both those companies to take steps to reduce those pre-payment charges and bring them back into line. I am not sitting here and saying that we consider that sort of action necessarily sufficient. The authority of Ofgem will have to judge, on the basis of those actions and the responses to our probe, what further steps, if any, we think are necessary to ensure that remains the case going forward. Q215 Lynne Jones: I have a letter here from a constitute dated October 2008 informing him that from August 2008 we will have to raise gas prices by 29.2 per cent and electricity prices by 19.2 per cent on average. Is that something that is permissible? Do you allow this kind of retrospective pricing and is there anything you can do about it? Ms Harrison: What is important is that the customer is notified of any price change. What is also important is they have an opportunity to decide whether or not they want to accept or remain with that supplier and therefore accept that price change or to switch to another supplier. There are specific rules in the licences to make sure that protection is there for customers. Q216 Lynne Jones: The only answer is for this gentleman to switch his supplier. There is nothing that can be done about increasing prices retrospectively. Ms Harrison: The point is from the customer's perspective if he or she has decided to remain with that supplier then it is only at that point that those charges would be applied. The customer still has the right to make that choice before those charges are applied. Q217 Lynne Jones: It is not a very happy choice to have to make. What is your view on stepped prices? There has been a lot of concern about the fact that low energy users, who are generally people on lower incomes, maybe they should be using more, are charged less than higher energy users. Also, in terms of discouraging affluent people from wasting energy, should there not be a stepped price so that the more you use the more expensive it becomes? Ms Harrison: This is an interesting issue. If I can come back for a moment to pre-paid meters and then move on. One of the things we have been concerned about in relation to pre-payment meter charges is the extent to which there are higher premiums for greater consumption. From a fuel poverty perspective because it can also be the case that customers who are paying by pre-payment meters and maybe consuming more could be lowering fuel poor house customers may be in fully insulated housing. We are concerned about the social aspects of that and therefore want to see whether there is any scope for that to be addressed. Q218 Lynne Jones: They presumably could apply to go on a social tariff. Ms Harrison: Indeed they could. Any specific case we would always encourage customers to talk to an energy supplier about whether that is the best tariff for them. The other aspect of this is the debate around rising block tariffs which fundamentally would reverse the arrangements as they exist at the moment. This is a very interesting area and it is one that Ofgem is actually looking at. We are doing some work now looking at rising block tariffs, looking also at the incentives more broadly on energy suppliers to promote energy efficiency from a tariff perspective and we will be setting out some of the output of that work in the spring. The only general comment I would make on that in relation to fuel poverty is the same point, that it may be that higher consumption is being experienced in households where perhaps there is under-occupancy or there is poor insulation which could be contributing to why the consumption is high so there are some possible unintended consequences that we need to consider. Q219 Chairman: To be quite honest I think I am struggling to understand what a rising block tariff is. Electricity tariffs are quite complicated to understand if you have to look at a plethora of information. It is a bit like mobile phone charges; it is quite difficult to work out what the best buy is. You have to hope that some website somewhere will help you. Let me ask, without getting into a detailed discussion, this inquiry is focusing on those who are fuel poor. By and large they are people who are at the margins of life in the sense that their incomes are very strained, they may not always be living in the best of circumstances, they might, for example, have large households. There might be all kinds of social and personal characteristics that make life very difficult for these people. For them to be expected to carry out the kind of detailed analysis which they might usefully do but may not be able to do, simply because they are so busy doing other things, to decide what is the optimum purchase either of their power supplies or to access, as we discussed with our earlier witnesses, information on energy efficiency measures, and I think you alluded to it in your own observations, they well be missing out on things that could make life easier for them. Number one, as the regulator have you done any work on the awareness of those people who are in the category of fuel poor as to how much they are aware of all the help that is available and, secondly, what are the barriers to accessing that help? Ms Harrison: Yes, we have. We have looked, in terms of the customer research, at the experience that customers have in making choices in the energy market. There are real issues there. Perhaps one of the most significant is the risk, or the fear of risk, in making the wrong decision and putting the customer in a worse position. Again this is something we really have looked at in the context of the energy probe. Some of our proposed remedies are really around trying to make the customer experience a simpler one in terms of making choices in the energy market. For example, one of our proposals is to require an annual statement from a supplier to their customer about the amount of energy they use and consume and the tariff they are on so it gives you a very simple way of then subsequently comparing that with other deals that may be available. The other angle we are trying to pursue through the probe is to look at the important role that switching sites now plays in the energy market and other markets as well. There we are very interested to get a dialogue with Consumer Focus, who own the code of practice that governs the switching providers in this market, to see whether there are ways in which switching sites can provide simpler and easier information and also information on switching not just over the internet but by telephone which is sometimes the only way of making the choice. Q220 Chairman: Useful as that line of inquiry is, going back to the people we are talking about, this inquiry takes place against the background of a rising trend of people in fuel poverty. I am interested to know if there are things which people can do and what are the barriers at the moment? You said, first of all, they may be worried about making the right decision. Secondly, you have said they may have to use switching sites and you are looking to deal with that. That is almost getting into the realms of the quite complicated, dealing with perhaps some of the kind of lifestyles against which the fuel poor have to exist, and particularly the elderly fuel poor some of whom may not be internet enabled and may be just as worried about using IT as people that worry about making decisions. What have you done to look at the barriers to making change and accessing help and to make recommendations to make life easier for those people? Ms Harrison: Particularly on the switching sites, I want to repeat the point which is that we think there is a role for telephone switching as well as internet switching and that is why we are keen that Consumer Focus picks that up and looks at that in the context of the Code. Q221 Chairman: Did you go and ask people "You have got massive heating and lighting bills. Did you know you could get this cheaper, yes or no? If the answer is no, tell me why did you not know." It is very simple questions like that which I am interested in. "If you decided you wanted to change, what stopped you" or "What were the factors that led you to live in a place that has not been properly insulated? Why did you not know about these schemes? Have you ever heard of X, Y and Z?" Has that been looked at? Ms Harrison: In terms of a customer's experience of making choice, in other words switching tariffs, yes, we have. The example I gave is that one of the things people have come back and told us is it is complicated but also there is a fear of making the wrong decision. What we have not done specific research on, and I am not sure if Defra or DECC may have done, on whether customers have broad awareness of all the different schemes that are available, for example Warm Front, CERT and so on. Mr Hargreaves: The Energy Saving Trust might have carried out some work on DECC's behalf. Q222 Chairman: I woke up yesterday listening to this launch by Dame Tanni Grey-Thompson of her new initiative aimed at effectively people who are struggling because they have disabled people in the household to get a good deal on their energy costs. The amount of money that was put by, I presume by energy providers, to this was very substantial. It made me think why has it taken somebody like her to run an initiative aimed at a particular category of person to get information that ought to be readily accessible. For her group of people read the group of people we are looking at. I got worried. Here we are, seven years into this programme about fuel poverty and yet the fundamentals of what you do about it do not seem to get through to the target audience. Ms Harrison: That is a very fair issue. From my understanding Dame Tanni Grey-Thompson and Richard Wilson were launching the Home Heat help line. You may have heard from your suppliers who were here earlier that that is a supplier-funded initiative. Q223 Chairman: The question is why, when we have been at this group for so long, do we have to do it? What has failed beforehand that leads you to this type of initiative? I am getting the impression there is a lot of help around but it is not getting through. Ms Harrison: I do not think you can underestimate that challenge. In my opening remarks I made some points about the fact that one of the challenges here is there are a number of schemes and from the customer's perspective it is what are they and how are they valued and how do you get access to them. From our perspective and one of the other things we have done is required suppliers to make much clearer the information they have about their own different schemes, their own social tariffs, their own social programmes, to make that much clearer in their own information but also to third sector agencies who play a key role on the front line helping customers find the right help. Certainly from our own media work and our own work we are very regularly pushing the message and encouraging customers to approach their suppliers to ask for what help they are entitled to. Q224 Lynne Jones: Under CERT there has been a reduction in the proportion of the assistance that must go to priority groups. Are you not troubled by that? Obviously you administer the scheme so is there anything that could be done about it and also making sure that the priority groups are those that are fuel poor? Ms Harrison: A quick comment and perhaps I will ask Charles to add to that. I made the point earlier that we think it is important that these schemes are proportionately available also and targeted at households who have most difficulty meeting their energy bills and the benefits accrue to them. What has happened is that while the priority group percentage has reduced actually the definition of the priority group itself has widened quite substantially to all householders over 70. Q225 Lynne Jones: That makes it worse. Ms Harrison: As you quite rightly say, that is not necessarily going to be the most carefully targeted group in terms of the customers who are most in need of help. Mr Hargreaves: From the administration point of view, if we go back to the second phase of the Energy Saving Commitment throughout the course of that programme where the priority group was defined as low income and income related benefits and tax credits the supply of reported activity was 60/40 pretty steadily throughout the three years of the programme. Obviously as part of the consultation process the suppliers put in fairly strong evidence to say that the priority group, as it were the low income group, were becoming close to saturated in terms of the numbers of cost-effective measures that could still be installed. Defra, as it was at the time, undertook some analysis that actually substantiated that fact saying when you are in the lower income group there is only a finite number of cost effective measures that can be installed in these properties and if we were able to double the scale of the CERT programme and still require 50 per cent of the measures to go into those low income households it would be very difficult, if not impossible, for suppliers to comply with that obligation. They brought the target down to 40 per cent and also increased the scope of the priority group to include the over 70s. If I could give you the evidence we have of the current CERT programme, as I mentioned earlier it was 60/40 in relation to the non-priority priority group under EEC2. The evidence we have from the first two quarters of the first six months of the CERT programme 65 per cent of all activity has been undertaken in the priority group so there has been a massive switch, almost a reversing of the trend. Q226 Lynne Jones: Is that because there is greater awareness and more people are coming forward? Mr Hargreaves: I think it is because the scope of the priority group has been expanded to target the over 70s and the suppliers want to take advantage of that expansion immediately so they do not allow the competitors to saturate the market and prevent them from taking advantage in the future. Q227 Lynne Jones: The energy companies are set to have another windfall in terms of the allocation of the EU ETS. Should there be some assessment of the benefits to the energy companies and what proportion of that, or all of it, ought to be spent on either energy, fuel poverty measures or other social benefits such as energy efficiency overall? Ms Harrison: We do not have a view on the proportion but as a principle what we have consistently said, as far as back 2006 in our response to the Energy Review, is we do think that permits to pollute have a value and that value really ought to be captured and the revenues from that we have always taken the view the carbon credits should be fully auctioned. We also propose that the revenues flowing from that could potentially help fund either environment or fuel poverty programmes. That is a policy option that we have put on the table for some time and it is really up to government and others to decide whether that is something to pursue. Q228 Lynne Jones: You would be looking at that in your market analysis in terms of the pressure that you can put on the energy companies. Ms Harrison: Coming back to my point about wanting to look at putting more financial information into the public arena, exactly that: it would expose more clearly exactly how those windfalls are being gained. Q229 David Lepper: Just a thought about the questions that Lynne Jones and the Chairman were asking about disseminating to the people who need to know it the information and the recommendations that you have. Could you just say something very briefly about the relationship between Ofgem and what I assume now would be Consumer Focus and the role that was once played by Energy Watch now absorbed into Consumer Focus? What is the relationship between Ofgem and Consumer Focus now, if any? Ms Harrison: There is a relationship and a very good one. We are looking forward very much to working with Consumer Focus particularly in this area. I told you about things we do in terms of media campaigns and other initiatives to get the message out that there is help available and simple ways on how to access it. In some sense this is core Consumer Focus territory. We are very keen to understand how Consumer Focus is going to rise to that challenge and how more information can be made readily available. Q230 Mr Drew: You have not mentioned one of the most vulnerable groups or individual households which are those in very rural areas off the main gas pipeline with unpredictable electric supplies. What account do you take of these rural individual households and communities? Have you got a rural strategy? Do you sign up to Defra's rural PSAs in this area that we should give these people some consideration? Ms Harrison: We have statutory duties to rural customers as well as to customers on low incomes and older customers. Perhaps I can give you a few examples of what we are doing here. First of all, coming back to our energy programme, one of the highlights was the identification, from our point of view, of around about 4 million customers who are off the gas grid who only take an electricity tariff for whom the market is not working as well as it could because they are not able to access, by virtue of that fact, some of the more competitive dual fuel deals. Those 4 million customers are very much one of the targets of the sorts of remedies that we will be deciding on what is required next. I am pleased to see that some of the companies have already acknowledged our findings by making announcements over of last few days to cut prices to their electricity only customers to bring that differential back into line. We see that as a step in the right direction, but to repeat the comment I made earlier I would not want to create the impression we think that, in and of itself, is sufficient. It is for the authority to decide what, if any, further action is required. The other area where we look at customers off the gas grid is in relation to setting the gas distribution price control which we did actually for the first time last year. As part of that we have given the gas distribution network businesses some specific incentives to extend the gas network into fuel poor communities. Q231 Mr Drew: Can I check that is still part of Ofgem's official policy structure, that you are extending the gas network? Ms Harrison: Regulating the gas networks is absolutely our core business. We have put some specific measures or incentives in place to extend networks into fuel poor communities. Chairman: You are not waiting for the gas connection. Mr Drew: I have many constituents who would love gas connection but unfortunately it is like waiting for Godot. Lynne Jones: They could just have air source heat pumps. Mr Drew: We will be looking at that. Q232 David Taylor: How long have you been with Ofgem? Ms Harrison: I have been with Ofgem approaching nine years. Q233 David Taylor: Since day one. Ms Harrison: Pretty much since day one of Ofgem, yes. Q234 David Taylor: You said at the start, and I paraphrase slightly, that you were pretty happy that you were promoting effective competition and that you were protecting the interests of the consumers, did you not? Ms Harrison: I said that was our principal objective to protect consumers. Q235 David Taylor: You thought you were doing quite well in that regard. Ms Harrison: Overall Ofgem has delivered in that regard in terms of choice and fair deals. Q236 David Taylor: Would you be disappointed if you were to realise that a sizeable proportion of your consuming population, certainly the population in this place, see Ofgem in the top pocket of the energy suppliers? Ms Harrison: I would and I do not believe that is the case. I would point you back to the work we have just completed. Q237 David Taylor: You say it is not the case but since oil peaked at $147 a barrel it has come down to less than a quarter of that price, going south, whereas the energy bills coming through my constituents' letter boxes are still going north. They might think that the subtext of protecting the interests of the consumer is just not happening. What on earth is happening with Ofgem? I have sat here for an hour or so and I am not especially wiser as to how you approach the role that you have in this area or any other. Ms Harrison: We have very much in the sense of making sure the market is working and is providing best value for customers. We have just pulled up all the roots on aspects of the energy retail market and have found it wanting in some respects which is why we are now looking to put in place some measures to correct that. Q238 David Taylor: To deliver more satisfactorily in many people's eyes. Is it the powers you lack, is the will you lack or have you lost the plot on these matters? Ms Harrison: Coming back to some of the recommendations from our probe, there are some areas where we are seeking additional powers. If I can give you one example, in respect of the wholesale gas and electricity market we want to have additional powers that tackle market abuse. There are some real issues there that we are not necessarily capable of dealing with in the current armoury that we have available. Q239 David Taylor: My constituents are not being supplied by the wholesale market but by the retail market. Let us move on to energy efficiency and whether or not Ofgem can actually make much of an impact in this area. Which do you think has the greatest potential to make an impact on fuel poverty, would it be your prime aim of promoting competition and perhaps reducing prices or would it be energy efficiency? Which has the greater potential in tackling fuel poverty? Ms Harrison: They both have a part to play. Q240 David Taylor: I am asking you to choose. Ms Harrison: I do not think you can necessarily choose. Energy efficiency is crucial and I would certainly put a lot of weight by that for the simple reason that it is through insulating and making our households more efficient that we are going to have a more enduring solution to fuel poverty. Equally I would say that in relation to income maximisation we would say put more weight in that area but that is not to say the attention should be diverted from making sure that energy prices remain as competitive as they can be. Q241 David Taylor: Ofgem consumes a substantial amount of public resources each
year. Presumably amongst the things you
have been able to purchase would be a fairly complex and sophisticated model of
the Ms Harrison: No, we look at the government's own Fuel Poverty Advisory Agreement and the government's own response to that where overall, up until recently, one of the most significant contributions to tackling fuel poverty has actually been made through increased incomes. Certainly in the earlier period of the life of the target it was through reduced energy prices, which has been reversed. We ourselves have not done any specific analysis in that area to take that forward. Mr Hargreaves: It would be fair to say that other agencies that are working for government have looked at the area. There is a building research establishment which has a very complex model of how energy is used within the home who do the appropriate analysis to see whether you are in a solid wall house or a cavity wall house. Q242 David Taylor: I would be astonished if, as the regulator for the gas and electricity market and with the objectives that have been set for you, you had not built or borrowed or had access to this sort of model. It does not appear to me that you have the data that you need to either judge whether or not what you are doing is successful or efficient or for the outside person to have a performance indicator on the role and performance of Ofgem. To me it seems rather unsatisfactory. It seems like an organisation crying out for radical change. Do you agree on that? Ms Harrison: Is that a statement or a question? I would come back to some of the findings that we have most recently identified and the authority will have to judge the actions that now need to be taken not just in terms of prices and unfair pricing but also in terms of what more can be done to make customers' experience of the energy market better and easier. There is potentially a real shift there that can be achieved by making it much easier for consumers to make choices in this energy market and we are very committed to pursue that. David Taylor: If you align your activities more closely with consumers, particularly those in the lower income category, you would be doing a better job. Q243 Chairman: One of the things which has been discussed is the potential role of smart metering in terms of helping people to both monitor and ultimately reduce their energy consumption. My first question, albeit we are at an early stage in the evaluation of this technology, amongst specifically those people who are fuel poor, both old and young, is there any behavioural evidence that convinces us that smart meters really do make a difference? Ms Harrison: I am not aware of any specific evidence at this stage. Perhaps I could draw to the Committee's attention the trial that Ofgem is running on behalf of government that will be completed in 2010 which is looking at smart metering, the impact of better billing information, and the impact of real-time display devices and how that has changed and influencing behaviours. Some of the aspects of that trial are also being run in different household profiles. It is very early days in terms of any feedback from that trial but we did publish a report in June. Certainly some of the experience was really coming back in relation to impact of better billing and real-time display devices and it was fair to say it was mixed. On real-time display devices there was some evidence that some of the measures had not been installed by householders or if they ran out of their batteries they were not then being re-powered but, having said that, those householders that were taking advantage of the real-time display devices from that trial feedback seemed to be responding well to that. This is an important area for us to look at and to make sure that we gather the information from this trial and make sure it does inform the thinking about smart metering going forward. Q244 Chairman: When we have looked at it before part of the advantage of smart metering is its relationship to different types of tariff that might be available. If the supply side has not provided the customer with a series of easy to understand options about their tariff then you cannot say that smart metering has the potential to help the fuel poor, can you? Ms Harrison: On smart metering, perhaps one comment. In our own analysis of smart metering done two or three years ago, certainly on a cost benefit basis, we saw there being much more potential for our customer benefits from the smarter end of the technology spectrum. The other point I referred to is the work that I mentioned earlier where we are now looking at incentives on suppliers in relation to energy efficiency and tariffs and that clearly has a relationship to smart metering. Q245 Chairman: Are there other European countries which have smart meters? Ms Harrison: Yes. Q246 Chairman: Has anybody done any work in any of those to see if they have measurable behavioural effects that might be of benefit to the fuel poor? Mr Hargreaves: In the case
of Q247 Chairman: The answer is no. Mr Hargreaves: No, not that I am aware of. Q248 Chairman: Not that I expect you to monitor everything. A lot of people get hung up on the technology and the information but like all information it is what to do with it. It goes back to what you were saying earlier on. You want the electricity companies to be more transparent, fine. You can have a huge wadge of information but it seems to me from the practical customer point of view you need something that says I can find ways to reduce my energy consumption, how can I also reduce my expenditure. I am using less but can I buy it better? We have not got a clear answer on the "can I buy it better" mechanism and the jury seems to be out on whether smart meters really are the silver bullet to this problem. That is the message I am getting. Would that be a fair assessment? Ms Harrison: We are very supportive of smart metering and I entirely accept that. Q249 Chairman: Even if somebody gave the green light to smart meters tomorrow it would take a very, very long time indeed before everybody had one. Within the framework between now and 2016 by definition smart meters are not going to solve the problem of fuel poverty so we have to go back and look at what the kit bag is now. Ms Harrison: I certainly would not disagree with that. There are more intermediate steps that could be taken, and I will come back to the point about billing. One of the things we are looking at is whether there is a role for an annual statement which gives consumption information, whether there is scope for more clarity on the bill about the amount of energy that you are using. Q250 Chairman: It would be nice if all the utility suppliers actually did provide
that basis. When we did our last inquiry
into this area some said they would do it.
The one I have in Ms Harrison: I think that is right and that is why we need simpler information on the amount you use and what your tariff is. Q251 Chairman: We have been at it for two years. You are putting it in the most modest and polite terms that is what we need but my question is why do we not have it now, which might explain Mr Taylor's frustration in our probing Ofgem about what it is doing. You must have come to the same conclusion some time ago that we could do with improvements in this area but we are still waiting for them to arrive. I suppose they will be like buses and we will end up with bills with too much information all at once but some action would be better than none. Let us move on to the post-2011 obligation in terms of suppliers. What do you think that is going to look like when you have to discuss with the supply side what their obligations are going to be post-2011 and what areas would you think ought to be included if consumers are to benefit from any changes therein. Ms Harrison: One of the fundamental questions is whether the supplier obligation continues to have, as part of it, a requirement to target measures at priority groups. There has been some debate, and I heard it earlier this afternoon, on separating out the energy efficiency objectives from fuel poverty objectives. Our concern with that is given that these are measures that are having a bearing on household energy bills and costs it is important that some of that benefit is felt proportionately by those for whom these costs are more difficult to bear. That is a fundamental principle point I would make. Mr Hargreaves: That is right. It has already been discussed whether the costs should or should not be picked up. I think the assumption should be that the costs are being picked up by all consumers. If there is a separation between the programmes between those targeted at fuel poverty and those that are not in fuel poverty then you could expect there to be a window of very low income consumers that would get everything out of programme and those that sit just above the fuel poverty definition, de facto say spending 9 per cent of their income on measures, would not receive anything from the programme because the suppliers, on one hand, would be looking to get contributions from those consumers that could afford to pay and would be targeting measures because of their obligation on those that are in fuel poverty and there would not be this window. Under the current programme where you have this 40 per cent targeting of the priority group, it is slightly contrary to what you heard previously. It is an equity-based approach, namely ensuring the companies target a fair chunk of their activity on those consumers on low income benefits and tax credits ensures that the low income consumers do get their fair share of the benefit of the programme. Q252 Chairman: It sounds to me as if you have to have a sharper focus on who gets what in the post-2011 regime bearing in mind that meeting the 80 per cent climate change figure is, according to the report that has just come out, going to actually increase the number of people in fuel poverty all the way through to 2022. It is not a problem that is going to go away, is it? Ms Harrison: In the face of those carbon targets, no. We have seen the Climate Change Committee's own analysis of the impact on fuel poverty and therefore the need to think about things like the role of rising block tariffs and the role of other tariff approaches to improving energy efficiency. Q253 Chairman: Mr Drew has touched on the subject of those people who are not connected to mains gas, and an equally difficult and nonetheless numerically significant number of people are those who live in older-type houses with solid walls which are not easily insulated. They seem to be a very difficult target to get out of fuel poverty. What is the Ofgem formula to deal with that? Ms Harrison: It is important to continue to explore all the measures that can be employed in the household to make it as energy efficient as possible but when that has been exhausted then there comes a point at which it becomes more inefficient to carry on down that road and therefore it may be appropriate at that point to look at income-related measures or further support through fuel subsidies. Q254 Chairman: That is a lovely statement but how would you actually formulate a policy approach to translate that into reality? When we have looked at this subject, this particular target, the hard to insulate house, we have known about it for a long time and we have known that people on low incomes live in them for a long time and the problem remains. How do we actually get at the unmet need? There are clearly people in fuel poverty who live in such properties who have not yet been affected by any of the programmes we have been talking about. Mr Hargreaves: You are right that the message has been going around for a long time and that was picked up by Defra in its discussions in relation to how the CERT programme should be developed. Under the CERT programme a small chunk of the programme can be met in the priority group flexibility mechanism, a mechanism that allows suppliers to be heavily incentivised to target measures on consumers off the gas grid with ground source heat pumps and those consumers anywhere in a solid wall home that are on a low income with solid wall insulation. It is at the moment a very small part of the programme. The point is that we will have an opportunity to learn from that part of the programme over the next three years and then feed that experience into the development of the programme post-2011. Q255 Chairman: Is the key still making certain that the energy companies know who the target audience is if the target audience do not tell them? I am not certain how you connect it up? Mr Hargreaves: We can safely say those consumers who are in a solid wall home that live on income-related benefits are going to be the group that are highly likely to be in fuel poverty. That is exactly the group that is targeted in this priority group flexibility mechanism. Q256 Chairman: How would they know they were in it? Mr Hargreaves: How would the consumer know? I am afraid that is for the supplier to market the programme. Q257 Chairman: It is a circular argument, that unless the suppliers really go for it they are not going to get any kind of response. It comes back to the point that Centrica were making as to whether you have to have some active management to go out and knock on doors and seek people who are in need of help. Ms Harrison: The other thing it comes back to is the value of community-based approaches. If you look at initiatives like the Warm Zone scheme, there have been some good partnerships between suppliers using all the information they have available but also being partnered by local authorities and by other third sector agencies so there is a collective effort to identify customers who are not relying only on householders following up their interests. Q258 Mr Drew: You are right. The biggest problem in my area is the social stigma that older people actually feel if they are seen to be actually seeking help. That is the biggest barrier to overcome for people who are literally freezing to death in their homes. That has to be why community-based schemes are important. Can I throw in one thing I am not clear on? Are you pressing the government on the issue of social tariffs for some clarity on where the government is and whether there is a need for clear legislation in this area? Ms Harrison: We are not pressing the government on social tariffs. We are certainly pressing for a need for a debate and a consideration of this. This is a very interesting area. Q259 Mr Drew: Some companies are saying they are actually offering social tariffs, and there is some question mark about whether they are genuine social tariffs, other companies are saying "We do not need to because we are targeting poor people in other ways" and some companies say "It is not our role, this is the role of government." As Ofgem you are the regulator so you must have a view and presumably you are passing that back to government to say give us some clarity in this area. Ms Harrison: What we have said is that we think there should be some minimum criteria for social tariffs. We have set out what we think they should be, which is in order for it to be described as a social tariff a customer ought to be confident that it is going to be the lowest available tariff in their area including, for example, by comparison to on-line tariffs. I am particularly pleased that there are now some suppliers who are beginning to move towards meeting that standard. What we have not done, and what I think is something for government, is set out what we think minimum eligibility ought to be and that really is a question for government. In essence it is about deciding which customer groups ought to be entitled to this level of support and of course conversely which should not. Those are judgments which we think the government is best placed to make. The other point I would make is that there is a value in the arrangements as they exist at the moment because what it does or means is that suppliers are really, in the context of the competitive dynamic, looking to be innovative in the way in which they identify householders among their customer base who maybe ought to have access to the social tariff and similarly they are also looking at being innovative in the way they are packaging help so, for example, some social tariff measures are also partnered by advice on access to benefits or are partnered by energy efficiency advice which is again taking a more holistic approach to targeting the issues, so we do see some value in that approach. Chairman: Can I thank you very much for coming before us and for your written evidence and we much appreciate your contribution to our inquiry. |