Press Notice No. 13 of Session 2004-05, dated 26 May 2005
THIRTEENTH REPORT: OFGEM: THE SOCIAL ACTION PLAN AND THE ENERGY EFFICIENCY COMMITMENT (HC 442)
Mr Edward Leigh MP, Chairman of the Committee of Public Accounts in the previous Parliament, said today:
"It is a continuing and serious injustice that many of the more vulnerable members of our society pay significantly higher prices for their energy through using pre-payment meters. Ofgem must at the very least make sure that these consumers are aware of the extra costs they are incurring and that they are not subsidising the more prosperous who pay by direct debit.
"Energy efficiency measures are to be applauded but Ofgem is in the dark as to exactly how much difference these activities have made. It is important to know that these measures are actually resulting in less energy being used and lower bills being paid. Looking to the future, Ofgem must do a lot more work if it is to have a hope of meeting the more ambitious targets for the coming years. There will need to be a national campaign to encourage consumers to take up energy efficiency measures"
Mr Leigh was speaking as the Committee published its 13th Report of the 2004-05 Session, which examined Ofgem's (the Office of Gas and Electricity Markets) Social Action Plan and its Energy Efficiency Commitment.
The Committee found that around 2.25 million households in the UK are classified as being in fuel poverty, spending more than 10% of their income on energy to heat their homes. Although numbers in fuel poverty halved between 1999 and 2002, recent price rises for gas and electricity will increase the numbers in fuel poverty over the next 12 months.
Two million gas consumers and 3.7 million electricity consumers pay for their energy through a pre-payment meter. Consumers can choose a pre-payment meter because it helps them budget for energy use. But suppliers also require consumers who have fallen into arrears on their energy bills to use a pre-payment meter. These arrears often occur because suppliers have provided inaccurate estimated bills in the past, causing a build-up of debt.
Pre-payment meters are the most expensive way to pay for energy, costing around £60 a year more than payment by direct debit. Ofgem endorses these higher prices because they enable suppliers to recover the higher costs of installing and maintaining pre-payment meters. But suppliers are not permitted to charge higher prices to consumers in rural locations, even though it is more expensive to deliver gas and electricity there. Ofgem's support for higher costs for pre-payment meters is not consistent with its obligations to vulnerable consumers.
The energy market therefore works against vulnerable consumers. They can fall into debt because suppliers do not provide accurate bills. The supplier recovers the debt through a pre-payment meter. They then have to pay the extra costs of installing and maintaining the pre-payment meter. And many consumers do not know that pre-payment meters cost more.
Increasing the energy efficiency of individual homes can help to reduce fuel poverty and also lower the UK's carbon emissions. To achieve this, the Department for Environment, Food and Rural Affairs (the Department) has designed the Energy Efficiency Commitment, which requires suppliers to meet specific energy savings targets. Its estimated cost over the three years to 2005 is £486 million. Ofgem administers the Energy Efficiency Commitment on behalf of the Department.
Suppliers meet their targets by providing energy efficiency measures, such as cavity wall insulation and low energy lightbulbs, to households. Ofgem's administration of the scheme focuses on the numbers of measures installed by suppliers, such as the number of wall cavities insulated. It does not confirm that these measures actually deliver the intended reductions in energy use and hence lower carbon emissions.
Ofgem estimate that the Commitment added around £8 to each consumer's bill in 2004-05. The Department intends to double the size of the Commitment from 2005-06 which will increase the cost to consumers to around £18 per year. Other environmental measures, such as the Renewables Obligation, and a new Europe-wide Emissions Trading Scheme, will also add to bills. Overall, Ofgem's estimates show that environmental measures will constitute around £33, about 6%, of the average energy bill in 2005-06.
to view Report