Examination of Witnesses (Questions 240-246)
CALLUM MCCARTHY, JOHN NEILSON AND VIRGINIA GRAHAM
THURSDAY 23 MAY 2002
240. Is there any assessment of how the different companies perform?
(Ms Graham) They have different policies on how they deal with people in debt. The generic point is that perhaps all of them do have information there, if they choose to use it, which could point up the people who persistently have problems in paying and then they could look at that and see for example whether they need more energy efficiency installed in their homes, whether they need access to general financial counselling. What we know is that when people have problems with paying one bill, they are probably having problems paying other bills. It is really looking at a more holistic approach to the difficulties people are in. What we hope is that the work with energywatch, when we issue guidelines later on in the year, will look at those kinds of things. The information is already there but it is making better use of it.
241. One thing we have not spoken about, and you and I discussed it once at length at a session and I do not want to go down it too far today, is smart metering. Where are we on this one? The London Electricity Group told us that for it to be attractive to make the investment distributors would need an agreement with the Regulator for cost recovery through price controlled charges to suppliers. Is this possible? Would you want to get involved in that area?
(Mr McCarthy) It is not the approach which we think is the right approach. I am very conscious that almost the first question you ever asked me when I came to this job was about smart metering and you then commented on how slow we had been.
242. You have not got much faster then.
(Mr McCarthy) We have made some progress. It is a difficult area for us. It is an area interestingly where, when we consult, the views are more polarised than anything else and there are many people who, like you, say we have been very slow and many people who say we should not be doing it at all. We have got to a position where there is some genuine competition in metering. It has been very interesting seeing recent announcements about changes in the provision of metering services. We think that is the right approach to pursue. We have published our policy in a metering strategy which we shall shortly be updating.
(Mr Neilson) In addition there is a specific work group which we are running with Elexon at the moment which is looking at this issue of innovation in smarter metering. We think the fact that British Gas announced this week that they were moving away from the traditional monopoly way of meter provision is a very good sign that suppliers are taking seriously the opportunities for better more innovative meters. We think that is absolutely the right way to go rather than the Regulator prescribing and trying to provide it in a monopoly way through a price control.
Chairman: We shall not go any further down this road. We have been down it a number of times. It was just that we had some evidence in our last session and we though the London Electricity point should be made.
Sir Robert Smith
243. Some households now have the option of going down the road of things like Stay Warm where for them the meter is no longer relevant and they know that. How is that settling down?
(Mr McCarthy) It has around 200,000 people on the scheme. There have been quite significant price increases for people who are on the scheme and it has been very effective for the age group which has been aimed at, which is the over-60s. There are no regulatory problems for it being done in area or out of area. It is a scheme, rather like a number of other schemes, where it is fair to say that the jury is out on whether over a long time period it is going to deliver value for customers. One of the important things is that people should assess it and all the other schemes very carefully.
(Mr Neilson) You can envisage a group of customers for whom when it gets cold the fact that they feel they can put the heating on and they are not going to pay more will be a very valuable offering. It is one of many innovations.
244. Has there been any measurement of the different consumption profiles?
(Mr Neilson) You would have to ask the company operating the scheme.
(Mr McCarthy) The company has told us in confidence and it is for them to disclose the results.
245. The other question where I am not sure what your answer can be really is: what can Ofgem do to assist the rural fuel poor?
(Mr McCarthy) There are two groups where we have particular concern. If you look at switching as a measure of the effectiveness and availability of competition, there are two groups where switching levels are below the average: one is in relation to people who live in rural areas and the other is pensioners. Rural areas are quite difficult because the most effective way of getting the competitive offering in front of prospective customers has been doorstep selling and by definition doorsteps are further apart in the country. The other thing which is difficult is that a lot of the most attractive offers are often dual fuel offers and it goes back to the previous discussion on availability of the gas network. We have been working with an organisation called ACRE to try to see whether there are ways of improving the offering in the countryside. We have been taking the steps we previously discussed in terms of the change of the rules or extensions to the gas network, but it is quite a difficult problem.
246. You referred to the Stay Warm scheme and you said you have had the information in confidence from the supplier. We are not asking you to break the confidence but do you not think that there is a small problem here? It was suggested to us by NEA that you could establish a forum for the exchange of experience and good practice of Social Action Plan initiatives, but this runs up against the buffers of commercial confidentiality or reticence. It seems a bit strange that the essence of these schemes is that you must publicise them and let people know what is happening. There is no mechanism whereby you can assess across the board in public the effectiveness or otherwise of the initiatives.
(Mr McCarthy) There is a tension. We try to resolve it, for example the advisory group we set up for the Social Action Plan involves at least two principal electricity suppliers as well as British Gas. There is exchange of information there. On particular issues like debt management we set up particular groupings of people which we try to bring together, not just the supply companies but local authorities, to share best knowledge and best practice. One of the central things we have been trying to do, one of the things which has been quite successful, has been to ensure that the companies really attack fuel poverty, not, as one of them put it recently in relation to Factor 4, as a contribution to a begging bowl, but because it is central to their business. If you take Stay Warm, the attraction of that is that if you manage to get a group of people who are long-term customers, who do not switch, you do not have to read their meters, the actual supply costs, which are an appreciable part of the total cost at the end of it all, will come right down. Therefore that is an attractive thing for the company to do as a commercial initiative. The balance between giving companies the real incentives to pursue something, which is what we want, versus sharing information is quite a difficult one and one where on any issue we have to take a judgement.
Chairman: Thank you very much, that is very helpful. As a consequence of the evidence there may well be a request from us for additional information, but we shall get in touch with you if necessary. Thank you very much for your time and patience in waiting; we are a little behind schedule this morning.