Memorandum by National Energy Action
1. National Energy Action (NEA) welcomes the opportunity to contribute to the Committee’s
inquiry. NEA is a national charity working, together with our sister organisation, Energy
Action Scotland, to ensure that all households in the United Kingdom have access to
sufficient warmth for health and comfort at an affordable cost. Whilst NEA sees improved
heating and insulation standards as the most rational and sustainable solution to fuel poverty,
it is recognised that the relationship between domestic energy consumers and their suppliers
and the consumer protection role of Ofgem are also central to delivering the Government’s
aspiration to eradicate fuel poverty in England by 2016. Consequently, NEA’s submission to
the inquiry will be limited to comments on Ofgem and, in particular, to that regulator’s
contribution to the welfare and protection of vulnerable energy consumers. Where
appropriate, comments will follow the sequence of issues raised in the Committee’s series of
questions.
Regulators’ working methods and their effectiveness
2. Have regulators created communications systems with their relevant industry or industries,
which provide for accurate receipt and provision of information? Do regulators specify
clearly, and with adequate notice, what information they require from companies?
3. There are two distinct issues here. The first relates to collection of information and the
second relates to the use made by the regulator of information received. Despite recent delays
in updating quarterly data on vulnerable consumers, NEA would generally commend Ofgem
on the content of information required of energy suppliers. Suppliers to the domestic energy
market report every three months on a wide range of matters as part of their Social Action
Plan monitoring. Reporting on these areas is crucially important to agencies such as NEA in
assessing progress towards eliminating disadvantage within domestic energy markets.
4. Of even greater importance is the perception that Ofgem does not follow up what appear to
be anomalies and disparities evident from the information provided. This is most evident in
the case of information submitted by suppliers on debt recovery practice where, despite the
fact that ability to pay should be the fundamental principle, the period of debt recovery and
the weekly amounts collected for this purpose show significant variation. Nor does the
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regulator appear to question other data suggesting widely varying practice in the use of
payment methods such as prepayment meters and Fuel Direct.1
Economic regulators and the public interest
5. What is the most appropriate definition of the ‘public interest’ in respect of the activities of
the economic regulators? Is there a divergence between consumer interests and wider societal
concerns encompassed by the term ‘public interest’?
6. NEA takes the view that consumer interests are not synonymous with public interest. In the
case of domestic gas and electricity, public interest is served where all households have
access to sufficient warmth for health and comfort at an affordable cost. This is the key
objective of the Government’s UK Fuel Poverty Strategy reiterated in the key policy goal of
the 2003 Energy White Paper to ensure that every home can be adequately and affordably
heated. An interpretation of consumer interests that denies affordable warmth to a significant
proportion of households is counter to the public interest. Ofgem’s faith in the ability of the
market to deliver benefits to all consumers is misplaced and the regulator’s antipathy to crosssubsidies between categories of consumer prevents development of a supportive pricing
regime to assist low-income and other vulnerable households.
7. Have regulators been effective in protecting consumers from firms abusing their dominant
positions in markets and restricting practices between firms that reduce competition? Have
regulators successfully promoted the ability of consumers to switch at reasonable cost and
without undue restrictions?
8. In NEA’s view the answer to the first question is ‘no’. After almost ten years of
competition in the domestic energy market around half of all energy consumers remain
customers of the ‘incumbent’ supplier and incur considerably higher charges as a result. NEA
does not believe that the fact that consumers have the opportunity to switch is sufficient
response to this issue. Reasons for not switching supplier are varied and may include: anxiety
about the process; loyalty to the historic supplier; some degree of inertia; limited information
as to the economic benefits of switching; and lack of information and guidance on how to go
about switching supplier. An additional concern is the power of a supplier to prevent a
customer switching where there is an outstanding debt. With around 50% of energy
consumers forming a quasi-captive market NEA believes that Ofgem should give serious
consideration as to whether differential charging between incumbent suppliers and out-of-area
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Fuel Direct involves the Department for Work and Pensions making direct deductions from a number
of means-tested benefits in order that payment for debt and /or ongoing consumption can be made to
the energy supply company.
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suppliers can be construed as discriminatory. This issue is raised and discussed at some length
in a recent paper on energy prices and regulation2 in which the authors express concern about
incumbent market share and the possibility of regulatory intervention to address what may be
a growing problem for those vulnerable consumers who are least likely to switch.
Customer switching rates to December 2005
Average
Over 65
Prepayment
Low income
Rural
Disabled
State pension
Gas
47%
37%
37%
39%
46%
50%
37%
Electricity
48%
44%
43%
43%
46%
54%
41%
Source: Social Action Plan, Ofgem, 2006
9. Our perception is that Ofgem tends to see the free market as a panacea for all energy
consumer ills to the detriment of more creative options to address fuel poverty e.g a beneficial
and standard social tariff aimed at vulnerable consumers.
10. To what extent should the public interest influence regulators’ decisions on maintaining
restrictions on competition? How should regulators ensure that regulatory restrictions on
competition are limited and proportionate to the public interest(s) they serve?
11. In the provision of essential services such as gas and electricity the public interest is
paramount. Both social and environmental concerns may be seen to interfere with consumer
interest if this is defined in the narrowest possible way as simple economic advantage. In the
context of competitive energy markets it is clear that social equity must be a primary
consideration and that this will require the imposition of some form of restrictions on market
forces. However since NEA advocates a universal social tariff to provide advantageous terms
to certain categories of vulnerable consumer, and since costs associated with implementing
such a tariff will be distributed across all suppliers there should be minimal distortion to the
principle of competition.
12. NEA recognises that implementing a universal tariff will effectively remove the recipients
from the competitive market but also recognises that many of the households in question are
not participants in the competitive market.
Harker, M and Waddams Price, C (2006) “Introducing Competition and Deregulating the British
Domestic Energy Markets: a Legal and Economic Discussion” (CCP Working Paper 06-20), University
of East Anglia.
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13. What research have regulators commissioned into the public interest(s) they serve,
amongst the industries they regulate and those industries’ customers? What use have they
made of any such research?
14. Ofgem has been assiduous in commissioning and publishing research into a wide range of
supplier practices that affect energy consumers. Apart from the regular monitoring procedures
under the Ofgem Social Action Plan, the regulator has published numerous research reports
into areas such as energy advice provision, financial inclusion and Corporate Social
Responsibility initiatives.
15. NEA would question the extent to which Ofgem research has attempted to examine the
actual consumer experience and, in particular, the experience of disadvantaged consumers.
Current practice for the regulator is to engage in a two-way conversation with suppliers from
which consumers are excluded. Adherence to regulatory guidance and exhortation are
scrutinised, as are voluntary supplier programmes, but without any serious attempt to quantify
the benefits, if any, to disadvantaged consumers.
16. NEA’s other concerns in this area focus on a reluctance on the part of the regulator,
having identified best practice, to promote these policies and programmes across all suppliers
and the entire customer base. What Ofgem and the energy suppliers see as diversity and
innovation in providing services to vulnerable consumers NEA views as an unstructured and
piecemeal response to a consistent problem. Whilst some of the programmes devised by
suppliers are unquestionably of benefit to vulnerable consumers the fragmented and variable
nature of supplier services represents a form of postcode lottery. The issue of affordable
warmth is too important to be devolved to the inventiveness of the marketing arms of energy
suppliers. NEA does not expect commercial enterprises to deliver social policy objectives
without the active scrutiny and endorsement of both Government and Ofgem.
29 January 2007
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