Memorandum by LE Group
This memorandum is submitted by London Electricity Group (LE Group) in response to the specific questions raised by the Trade and Industry Select Committee (TISC) in its inquiry into fuel poverty.
LE Group includes London Electricity plc, the supply business which trades under the London Electricity, SWEB and Virgin Energy brands. London Electricity plc supplies energy to around three million customers across the UK but concentrated mainly in London and the South West.
LE Group is committed to helping alleviate the causes and effects of fuel poverty, with the ultimate aim of assisting the government to ensure that no vulnerable household need risk ill health due to a cold home by 2010.
Our fuel poverty policy involves developing and promoting a range of measures that will:
identify the causes of fuel poverty and the specific needs of fuel poor customers
help reduce energy consumption without reducing warmth
help reduce energy spending
enhance the payment tariffs we offer better to meet our customers' needs.
Many of the projects and initiatives that support this policy are covered in the answers given to the Committee Questions. However, the Committee may also find it helpful to be aware of the following additional initiatives.
LE Group is sponsor of the Warm Zone pilot in Newham, East London, one of five pathfinder warm zones. Initial estimates show that 25 per cent of homes are believed to be in fuel poverty compared to 17.1 per cent in London. Over the three-year programme, the aim is to assess all homes in Newham through a mix of desktop analysis and door to door assessments. The team aims to deliver measures to at least 14,400 homes to take them out of fuel poverty (to reduce overall levels by at least 60 per cent) and offer measures to non-fuel poor customers through a range of subsidised schemes, such as London Electricity's home owner occupier scheme.
In 2001 London Electricity and SWEB made the Priority Service Register (PSR) a key element of our work in targeting fuel poor customers and used a number of innovative approaches to identify customers at risk and acknowledge their special needs by including their names on the Register. As a result LE Group exceeded its target number for customers on the Register and achieved a significant uplift on the previous year. It is intended to continue to improve on the number of customers registered as a direct result of the improving service and products that we offer. Dedicated resources are committed to promotion of the Register with telesales agents trained to promote it to all customers.
Having recognised particular problems faced by the Asylum Seeking community in London, LE Group has taken steps to assist the Asylum Seeker Officers in the Borough Councils better to manage the energy needs of their clients. This work included training for Asylum Seeker Officers on the use of pre-payment meters and the provision of dedicated telephone numbers staffed by London Electricity customer service staff who had received specialist training. We are currently evaluating whether to roll out this service to further London Boroughs.
In addition to payment methods designed to assist customers to manage their energy bills LE Group has committed the following resources to helping customers remain debt free:
Direct free-phone number into debt action team from all CABs in London as a preventive measure.
All Customer Services staff are trained in debt prevention and are encouraged to refer customers to the energy efficiency team for further help and advice.
If you require any further comment or need any clarification of this memorandum, please contact me, or my colleague Sarah Threlfall on 020 7331 3412.
Group Corporate Services Director
London Electricity Group
15 April 2002
Q: Is the Government target of ensuring that by 2010 no members of "vulnerable households" need risk ill health due to a cold home, adequate? Can it be achieved?
1. The target is challenging but probably realistic and achievable. However, success will require full co-ordination between the Government and all other parties including energy companies.
2. Identification of households at risk is one of the biggest problems for energy companies and others working in the area. Energy companies have no immediate means by which to accurately categorise their customers in order to target assistance and nor are they allowed to cross-subsidise between customer groups. However, it is potentially possible to identify "vulnerable households" because the definition "vulnerable" contians some specific characteristics. Success against this target is, therefore, more likely than a target based on a less clearly defined group. In any event it is sensible that the most vulnerable group of customers receives priority.
3. London Electricity has carried out some specific workunder Ofgem's Social Action Planon the means by which to identify vulnerable customers. This highlights some particular barriers to achieving successful identification, such as the data protection requirements which prevent sharing of information. Partnership working between companies, caring professions and charitable agencies is vital if identification is to be achieved but it must not be forgotten that fuel poverty is only a small part of the wider poverty issue and many charities and health groups prefer to tackle the wider issue of poverty in general.
Q: Why has the number of fuel poor households fallen recently? Can this reduction be sustained?
4. Consumers have benefitted in recent years from a sustained period of falling energy prices combined with increases in income created by Government initiatives such as the Minimum Income Guarantee Scheme, Working Families Tax Credit, Minimum wage and changes to child benefit and allowances. The Winter Fuel Payment alone has the potential to pay for nearly half of the average pensioner households' annual fuel needs although it is frequently seen as simply a financial top-up rather than a payment dedicated to ensuring that adequate warmth is maintained.
5. The reduction in energy prices with customers benefitting from the competitive energy market is probably the most important single element: London Electricity's electricity prices have fallen by 35 per cent over the last decade.
6. LE Group has also been actively working to reduce the surcharge for pre-payment meter customers and has now achieved the lowest surcharge of all suppliers. Although customers who chose to purchase their electricity and/or gas through a pre-payment meter are not exclusively low income there is a high proportion of customers who are both low-income and who chose pre-payment terms. These customers have therefore benefitted from the efficiencies that have been achieved in the system which have brought the cost of electricity purchased through a pre-payment meter to within £8 per year of electricity purchased quarterly. LE Group is also trailing an initiative called PowerKeyPlus where no surcharge is applied but charges can be applied for callouts. So far there have been no callouts incurring costs and customer satisfaction has been high, we have still to assess the effects of the full Winter period.
7. Additionally emphasis on energy efficiency has significantly developed recently in line with environmental targets.
8. The reduction can only be sustained by continued concentration on addressing all three root causes of fuel poverty. The situation could quickly be reversed were income levels to fall and/or energy prices to rise substantially, either as a result of increases in the cost of energy or a combination of levies created within the price by elements to meet environmental targets. Fuel poverty is inherently linked to general poverty levels so that any substantial increase in, for example unemployment, created by an economic downturn would immediately create a corresponding rise in fuel poverty levels.
Q: What is the relative significance of factors such as poor energy efficiency, low incomes or the cost of fuel?
9. The poor energy efficiency of a property is often the first problem that can be addressed in attempting to improve a customer's standard of living and so is of vital importance. However, the most significant factor governing the extent of fuel poverty is income, a higher income gives the consumer choice in the way in which they purchase their energy and an ability to improve their own home to improve its energy efficiency. Since the definition of fuel poverty is a relationship between income and energy expenditure, the cost of fuel is of almost equal significance.
10. Energy efficiency measures alone cannot counteract very low income or high energy prices which become the elements of absolute relevance once the property has been improved as far as possible. Achieving significant improvements on some types of properties can be particularly difficult. The quality of the housing stock is a particular problem in London where a significant percentage of homes are above average age; one in three homes in London (more than one million) was built before 1919 compared to one in four nationally. While a high proportion of solid walled property and also of flats reduces opportunities for cavity wall insulation and other traditional insulation work.
Q: How effective are the industry-led initiatives?
11. The Energy Efficiency Standards of Performance (EESoP), now the Energy Efficiency Commitment (EEC), was introduced by the Regulator in 1994. It therefore started life as a Regulator initiative but the way in which Energy Companies have chosen to implement it has created a highly effective industry-led initiative benefiting the fuel poor. When the first scheme (EESoP 1) was introduced there was no requirement to target energy efficiency measures towards disadvantaged groups, although it was expected, at that stage, that around one third of measures would be directed to such groups. In fact Energy Companies decided to direct around half of their measures to disadvantaged groups throughout the lifetime of EESoPs 1, 2 and 3. This approach encouraged OFFER, and subsequently Ofgem, to set specific targets for the direction of energy efficiency measures to disadvantaged customers. Under the London Electricity and SWEB brands there are many examples of EESoP projects that have either been set up specifically to target this customer group or where differential pricing has been applied to allow all customers to benefit.
Q: How can government promote the take-up of energy efficiency measures in households whose income is just above benefit level?
12. This customer group has, in effect, been excluded from benefiting from either the HEES scheme or the Energy Efficiency Commitment (EEC). In the case of EEC, 50 per cent of suppliers' energy saving targets must come from customers in a defined "property group". The remaining 50 per cent has been costed within the DEFRA model to include a significant financial contribution from the customerie is being targeted at those who can afford to pay!
13. The "priority group" has been tightly defined and includes only those in receipt of certain benefits or Working Families/ Disabled persons tax credit. As the targets have been calculated on this basis, suppliers cannot afford to carry out measures specifically for the "near benefit level customer" without incurring costs above the assumed level of expenditure.
14. In the Warm Zone in Newham, East London, where London Electricity is a sponsor, one of the biggest challenges has been identified as the need to find funding for those homes which are in fuel poverty but are not eligible for full grants under existing schemes. Initial estimates in all of the pilot Warm Zones have indicated that around 50 per cent of homes in fuel poverty cannot access full grants.
15. The more relaxed definition of the customers in the "disadvantaged category" within previous EESoP programmes allowed suppliers to target elderly customers, for example. A more flexible definition of "priority group" within the EEC rules would be very helpful in targeting this needy group of customers.
Q: How much could better co-ordination between agencies or fiscal measures help?
16. In the course of 2001 LE group carried out research commissioned by Ofgem to investigate the feasibility of energy companies working in partnership with local agencies and other organisations, such as the Local Authorities, Health Action Zones and local branches of national Charities, to identify and help vulnerable customers. (A full copy of the report is attached at Appendix 1).
17. The project confirmed that working in partnership with such organisations could produce significant results to benefit vulnerable customers and ensure targeting of resources. However, forming partnerships and strong working relationships can be time consuming, particularly when working with volunteers. The research found a general degree of apathy towards fuel poverty, as opposed to general poverty issues, which became particularly acute when resource was under pressure. the NHS, through two different hospital units, was a particular area of interest but the research found that although NHS staff were supportive of the principle they did not, in general, have sufficient resources to give priority to allocating time to a patient's health-related energy needs.
18. Among the fiscal measures of relevance we believe that Fuel Direct is a useful tool for certain groups of customers but we are concerned that its applicability is not being kept in step with benefit changes. We are conscious that there is a small group, of usually elderly, consumers who are in receipt of some of the new forms of benefit, which do not allow them to then take advantage of the Fuel Direct scheme. These customers may not be in the lowest-income group, for which Fuel Direct was designed, but they are customers who struggle to manage their own finances and would benefit from the simplicity of Fuel Direct.
Q: What contribution to the elimination of fuel poverty might be made by technological advances?
19. Through the Barkantine Heat & Power Company (BHPC), London Electricity Group is using combined heat and power technology to supply low cost electricity and heating to over 700 homes, a sports centre and a school on the Barkantine Housing Estate on the Isle of Dogs in East London.
20. A new Energy Centre has been constructed within a disused former electricity substation built in the early 1900s. The Energy Centre has a Combined Heat and Power (CHP) gas-fired reciprocating engine that will generate 1.4 MW electricity and 1.6 MW heat. The heat is then distributed to the residents via a new community-heating network, that will provide for heating and domestic hot water through a system of buried pre-insulated pipes.
21. The scheme will provide energy at a price well below alternative supplies that will contribute to efforts to alleviate fuel poverty in this area. It is estimated that it will reduce overall heat and electricity bills by 25-30 per cent for an average customer and will also offer significant emissions savings, which will contribute to the UK target for 2010.
This scheme is one of only two DEFRA (DETR) Pathfinder schemes in the UK.
22. "Smart" metering can have the capability to inform customers and their suppliers about patterns of use, thus creating opportunities to encourage reductions in bills. However, such metering is relatively expensive and suppliers are probably not in a position to capture enough of the potential benefits to make it worth their while making the investment. This is partly because customers can readily change supplier but also because electricity is purchased by suppliers, for domestic and other small customers, on the basis of standard load patterns. It seems to us that such investment, if it were judged worthwhile, could be made only by distributors on the basis of an agreement with the regulator for cost recovery through price-controlled charges to suppliers.
London Electricity Group