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MEMORANDUM SUBMITTED BY BRITISH GAS (FP 22)
INTRODUCTION
British Gas is the UK's largest energy supplier, supplying around 10 million gas and 6 million electricity customers in the domestic sector and has over 1 million supply points in the non-domestic sector. It also has a services business that employs around 9,000 engineers and installs around 100,000 boilers per annum. As part of the Centrica group of businesses, it owns upstream gas production and (predominantly low carbon) power generation assets to support its supply businesses.
British Gas is also the market leader in providing assistance to its most vulnerable customers. We have already spent £80million on our social programmes in the past year, more than twice the amount agreed with the Government as part of the fuel poverty industry agreement. We further agreed to spend £41 million in 2009 and again look to spend almost double this amount. We also have the largest social tariff of any supplier with over 330,000 customers currently receiving our Essentials social tariff. Rates on our Essentials tariff will be on average 16% lower than our standard tariff, saving Essentials customers on average £188 on their annual fuel bill.
We welcome the opportunity to provide written evidence to the Work and Pension Committee inquiry into fuel poverty. Our key points are:
· Fuel poverty is a complex interaction of a number of factors including energy prices, quality of housing stock and household income. The Government's fuel poverty strategy was published in 2001 during an era of low energy prices. With the era of cheap energy widely regarded to be over, a comprehensive review of the UK's approach to tackling fuel poverty is necessary to ensure that there are specific and coherent programmes to tackle these three main drivers of fuel poverty.
· Although we believe that energy companies do have a role to play in tackling fuel poverty, we see ourselves working constructively with Government but focusing on those areas where energy suppliers can make a valuable and positive contribution. For example, managing our customers' energy consumption which we are committed to do through our energy efficiency programme (see appendix for examples). However, the wider onus of responsibility for tackling fuel poverty should lay with Government through the benefits system, as part of a broader problem of poverty.
· Social tariffs are one of a number of ways of helping poor and vulnerable customers stay warm in winter. However, we are concerned that if social tariffs were mandated that this could present a number of unintended consequences, not least significantly increasing the bills for non fuel poor customers if energy suppliers are required to offer a social tariff to an unprescribed group of fuel poor customers.
· We welcome the steps the Government have taken to improve data sharing with energy suppliers and are currently working with the Department for Work and Pensions to achieve a greater level of access to its benefits data to enable us to better target the fuel poor. If successful, this will help to ensure that a greater proportion of the money invested in addressing fuel poverty goes to providing further support rather than to funding targeting and marketing initiatives by suppliers which are currently inefficient.
· The Winter Fuel Payment provides valuable support to some vulnerable and fuel poor customers. However, it is not targeted and is available to any elderly customer over the age of 65 - missing several large groups of vulnerable customers and not taking poverty into account. Consideration should be given as to whether the Winter Fuel Payment could be better targeted to ensure that it has the maximum impact on those that need help the most. We believe the government should also link payment of the winter fuel allowance to the energy bill payment.
· Maximising household income and ensuring sufficient take up of Government benefits can also play an important role in tackling fuel poverty. Unclaimed benefits total around £8bn in the UK including around £5bn for pensioners - funds which are already committed by the government to helping poor and vulnerable families to cope. Further consideration should be given to how benefits uptake can be improved by increasing awareness and by simplifying the process for claiming benefits.
· We continue to support the use of Fuel Direct in helping gas and electricity customers in debt pay their energy bills. We believe more consideration should be given as to how this valuable payment tool can be maximised and used most effectively. Fuel Direct can also provide a good source of leads for energy efficiency measures, which is a sustainable way to help customers reduce their energy bills
1. FUEL POVERTY AND ENERGY PRICES
1.1 Whilst the early days of competition in energy saw dramatic reductions in energy prices, the changing energy environment coupled by international influences means that the era of cheap energy is over. Although recent price reductions, including British Gas's 10% gas and electricity price cut, have helped mitigate some of the impact of higher bills, the unfortunate fact is that energy will be more expensive if we are to meet our other goals of sustaining security of supply and meeting the challenges of climate change.
1.2 Going forward global demand for energy will keep prices relatively high as the UK competes for gas with the emerging Asian economies. The move to decarbonised energy sources will also mean further cost pressures. The Government has set out a programme to put the UK on a path to reduce carbon emissions by 80% by 2050 which will include more renewable energy and microgeneration. Ernst and Young estimate that £100bn investment is required by 2020 in renewables alone. This course of action is to be welcome but there are social implications as customers pick up the higher costs associated with this new technology.
1.3 The three main drivers of fuel poverty are energy prices, household income and the energy efficiency of the housing stock. There is currently a huge effort being made by government and industry to help the most vulnerable households in Britain. Although much progress has been made in reducing levels of fuel poverty, with energy prices now rising amid lower levels of disposable income, the number of households in fuel poverty has increased. It is estimated that there are currently 4.5 million households in the UK in fuel poverty. The Government's definition for fuel poverty is a household that spends more than 10% of its disposable income on energy. The current strategy for tackling fuel poverty, developed in a 2001 when prices were low, is no longer fit for purpose and there now needs to be a comprehensive review of the UK's approach to tackling fuel poverty to ensure that there are specific and coherent programmes to tackle the three main drivers of fuel poverty.
2. THE ROLE OF ENERGY SUPPLIERS
2.1 Energy companies do share some responsibility with Government for ensuring affordable warmth for the most vulnerable and poor customers in society. Suppliers already have an extensive commitment to fuel poverty. Over the next three years, energy companies will be spending over £375million on fuel poverty programmes, over £3.5bn on the Carbon Emission Reduction Target (CERT) Programme (of which 40% of the target is focused on the fuel poor) and a further £350mn on the Community Energy Saving Programme (CESP).
2.2 British Gas does more than any other supplier on fuel poverty. Since 2002, we have helped over 1.3 million fuel poor customers. We will spend an estimated £560 million between 2008 and 2011 on programmes to help our vulnerable customers. This is more than any other supplier. British Gas also has the largest social tariff with over 500,000 registered customer accounts and with customers typically saving on average around £180 compared with the standard tariff, around 16% cheaper. This is the same as our on-line Websaver 3 tariff, which is the cheapest dual fuel tariff available on the market. We plan to increase the number of customers on our social tariff over the next three years.
2.3 We particularly see ourselves working constructively with Government but focusing on those areas where energy suppliers can make a valuable and positive contribution. For example, managing our customers' energy consumption which we are committed to do through our energy efficiency programme.
2.4 As prices rise the focus will increasingly be on energy efficiency and income improvements. Poor insulation means that £1 in every £4 currently spent on heating UK homes is being wasted. Installation of insulation can save customers on average £175 per annum, and further considerable savings can be made from taking simple energy efficiency steps.
2.5 Under the Carbon Emission Reduction Target, and its predecessors, suppliers have consistently delivered energy efficiency savings to their customers at least cost. 40% of the target has been focused on the priority group or fuel poor. Furthermore suppliers have applied much innovation to increase take up of energy efficiency. For example the British Gas 'Here to Help' scheme which has helped over 320,000 households with a range of energy efficiency solutions, income maximisation options and social measures to tackle the root causes of household poverty working in conjunction with 5 charity partners. We also encourage all our customers to complete our on-line Energy Savers Report (ESR) which provides a free energy audit of the energy efficiency of their home. The ESR shows the savings customers could make for the improvements recommended. Over 2.2 million customers have completed the ESR with an average recommended energy saving of up to £175. In 2009, the report has been enhanced further to allow customers to view the suitability of their homes for solar and microgeneration. Further examples of British Gas's fuel poverty and energy efficiency initiatives are included in the appendix.
2.6 We have worked with a wide range of stakeholders including local authorities, charities (including Help the Aged, Save the Children, National Debtline, RNIB and Family Welfare Association), housing associations, community groups and retailers. We have been hugely successful in encouraging a mass take-up of energy efficiency products by British households in the last five years, and have supported the delivery of over 100million products, including the installation of more than 1.5million homes.
2.7 We also believe that smart meters will play a key role in driving energy efficiency in a number of ways. Firstly, they will provide timely and relevant information to customers about the cost of their energy consumption, enabling them to better manage both their budgets and consumption. We anticipate that smart meters will be remotely switchable between credit and prepay modes, and significantly improve today's prepay model and customer experience. Future "pay-as-you-go" energy consumption models will provide customer benefits in terms of both convenience and cost - e.g. real time electronic payments to top up meters (e.g. via mobiles) will eliminate the cost and inconvenience of issuing, charging, using (and losing) prepay vending keys and cards.
2.8 Smart metering is likely to drive some reductions in consumption (and so customer savings) through behavioural changes driven by better cost information, but also from more direct impacts from time of use pricing, and load management at the meter and later at the appliance level. Time of use pricing can reduce bills for those customers able to change their behaviour to consume less energy at peak and more off-peak. Load management will allow customers and suppliers to agree to physically restrict consumption at peak times in return for energy discounts, and provides the basis for future smart grid applications where load can be managed to deal with excess peak demand or generation problems. These features will reduce peak demand and the need for peak generation capacity, and in tandem with other measures also offers the opportunity to lower overall demand.
2.9 Finally, smart meters will support microgeneration technology, which will be of particular benefit to those in fuel poverty living off the gas grid, by enabling the measurement and presentation of value to the customer of microgeneration exports.
3. SOCIAL TARIFFS
3.1 Social tariffs are one of a number of ways of helping poor and vulnerable customers stay warm in winter. However, we are concerned that if social tariffs were mandated, that this could present a number of unintended consequences, not least significantly increasing the bills for non fuel poor customers if energy suppliers are required to offer a social tariff to an unprescribed group of fuel poor customers.
3.2 For example, it is estimated that nearly 5 million households are currently in fuel poverty. If it were possible for all these to receive a social tariff to the value of £200 per annum, this would create an industry cost of c. £1bn. This will increase bills for other people and push more households into fuel poverty. An alternative would be to either restrict the numbers who benefit to a very prescribed group but this creates risk around choosing one vulnerable group over another or reduces the amount available potentially making the tariff meaningless.
3.3 As energy prices rise in the future social tariffs will need to get broader and deeper, in effect increasing the problem
3.4 We are keen to engage in the debate on fuel poverty solutions and mandated social tariffs. However, we believe that there should not be a "one size fits all" approach and that energy suppliers should be free to offer customers a number of options including combinations of energy efficiency, social tariffs, and support through charity partner relationships.
4. DATA SHARING
4.1 Identifying vulnerable and fuel poor customers has always been a challenge for the industry and for some time we have been calling for more data-sharing with the Government to help improve targeting of the help available to those that need it most.
4.2 Currently there is huge wasted effort and cost associated with searching for these customers and without access to benefits data to more accurately target eligible households these costs will escalate substantially.
4.3 We welcome the steps the Government have taken to improve data sharing with energy suppliers and are currently working with the Department for Work and Pensions to achieve a greater level of access to its benefits data to enable us to better target the fuel poor. If successful, this will help to ensure that a greater proportion of the money invested in addressing fuel poverty goes to providing further support rather than to funding targeting and marketing initiatives by suppliers which are currently inefficient.
5. WINTER FUEL PAYMENT
5.1 The Winter Fuel Payment provides valuable support to some vulnerable and fuel poor customers. However, it is not targeted and is available to any elderly customer over the age of 65 - missing several large groups of vulnerable customers and not taking poverty into account. Consideration should be given as to whether the Winter Fuel Payment could be better targeted to ensure that it has the maximum impact on those that need help the most.
5.2 Currently everyone over the age of 65 receives an annual payment of £200 increasing to £300 for the over 80s, irrespective of income at a cost of between £2bn and £2.5bn per year to the taxpayer. This contribution goes some way to cover the annual cost of energy bills but often is not used to pay the energy bill. We believe that Winter Fuel Payment should be paid directly to suppliers so that we can offset this against their energy bills. In addition, we also believe that consideration should be given to the timing of year the winter fuel payment is made and better targeting, possibly considering whether recipients receive higher payments on the basis of need rather than age.
6. INCOME MAXIMIATION
6.1 Maximising household income and ensuring sufficient take up of Government benefits can also play an important role in tackling fuel poverty. A study undertaken by the London School of Economics on behalf of the British Gas Help the Aged Partnership shows that individual pensioners could be losing up to £50,000 on benefits over a lifetime, or £1,500, per annum by not claiming their entitlement. These benefits currently sit in the Government's pot of £4.5 billion unclaimed benefits for older people, but 1 in 3 pensioners are not aware of whom to turn to for help and advice on how to access these entitlements which could amount to between £5,000 and £50,000 per individual over a lifetime. Further consideration should be given to how benefits uptake can be improved by increasing awareness of what people can claim and by simplifying the process for claiming benefits.
6.2 We continue to support the use of Fuel Direct in helping gas and electricity customers in debt pay their energy bills. We believe more consideration should be given as to how this valuable payment tool can be maximised and used most effectively. Fuel Direct can also provide a good source of leads for energy efficiency measures, which is a sustainable way to help customers reduce their energy bills
APPENDIX
British Gas' Vulnerable/Fuel Poverty and energy efficiency customer programmes
Essentials: · Currently our lowest cost tariff equal to Websaver 3 which is the best dual fuel deal in the marketplace · Rates on our Essentials tariff will be on average 16% lower than our standard tariff, saving Essentials customers on average £188 on their annual fuel bill. · 535,100 products in total and 352,303 customers on the tariff · More customers on the tariff than the combined total of all those on our competitors' lowest tariffs · We have spent c £80m over the past year, twice the commitment (£34 mn) agreed with the Government to spend on fuel poverty.
Essentials Advance: · Launched innovative bundle "Essentials Extra" in summer 2008 · Home energy audits offered to all Essentials customers · Free loft and cavity wall insulation · £50 rebate for those with loft and wall insulation · 4,984 customers registered
British Gas Energy Trust · The British Gas Energy Trust is an independent charity that helps customers who have the greatest difficulty paying their household bills. Our customers can apply for grants and advice to manage their energy payments. · Over 12,000 awards totalling more than £5m have been made. · On average, eligible customers can receive £500 in grants. · British Gas has extended our commitment to the Trust for a further four years, taking our total investment to £21.3m since 2005.
'Here to HELP' · Launched in 2002, this programme aims to tackle the root causes of household poverty by improving living conditions and quality of life. · Through a partnership with five key charities - Help the Aged, Scope, RNIB, National Debtline and Save the Children - 'here to HELP' provides energy efficiency products, benefits assessments, essential appliances and adaptors and home security measures. · Is the largest social initiative in the UK
British Gas ExtraCare · British Gas has given a voluntary public commitment not to disconnect anyone we know to be vulnerable. · "ExtraCare" is the process we have adopted to help us proactively identify signs of vulnerability amongst our customers; and includes policies how we keep this information on our systems and what we need to do once we have identified someone as potentially vulnerable.
British Gas Home Energy Care Register · Our Home Energy Care Register provides essential services for some of our most vulnerable customers and around 250,000 customers now benefit from the service. · The Home Energy Care Register is a priority service register for all our gas and/or electricity customers who are elderly, disabled or chronically sick. It enables us to record any specific requirements these customers may have and helps us to provide them with services appropriate to their needs.
Home Heat Helpline · The national Home Heat Helpline was launched in 2005, offering help to customers struggling to pay their energy bills. The service is run by the Energy Retail Association and is funded by British Gas and other major energy suppliers. It gives one point of contact, connecting customers to advice and help from their energy supplier. A specialist British Gas team takes the calls from British Gas customers and connects them to the most appropriate support.
Council Tax Rebate Scheme · Through our innovative partnerships with Local Authorities, British Gas has led the way in promoting the efficient use of energy in the home while simultaneously delivering our CERT obligations. Private households purchasing loft and cavity insulation receive up to £125 council tax rebate, jointly funded by British Gas, and on average these measures reduce heating bills by £365 per year. Households also qualify for a rebate of up to £400 when purchasing solar water systems. · In total, British Gas is working with 68 councils, with over 23,500 installations taking place to date as a direct result of this scheme. Local partnerships have enabled us to make a significant, focused impact. Through our partnership with Croydon Council for example, 1,500 homes have benefited from the scheme, saving approximately 340 tonnes of CO2.
Green Streets · Green Streets is a domestic energy efficiency social experiment, funded by British Gas, monitored by the IPPR. The aim was to see how far 64 households in 8 cities could cut their energy use through a combination of energy efficiency measures and behavioural change. Each street was given £30,000 to spend on measures and worked closely with a British Gas energy expert to choose products and access ongoing support. · The winning street which had reduced its energy usage the most over the year was announced in January with the residents of Green Lane in Leeds winning £50,000 to spend on energy saving measures or community projects. The average energy saving across all Green Streets households was just over 25% with some houses decreasing their gas consumption by as much as 50%
Energy Savers Report · The British Gas Energy Savers Report allows consumers to understand their home's energy efficiency performance. The report is generated using an online questionnaire which calculates the current energy rating of a house, and provides personalised suggestions to help reduce energy consumption and bills by up to 33%. Over 2.2 million households have already completed their own Energy Savers Report, and 91% of them found it useful in helping them understand how to save money
June 2009 |