Energy and Consumer Engagement with Energy Markets

Ref Organisation Page CE 01 DECC 3 CE 02 uSwitch 14 CE 03 OVO Energy 20 CE 04 and CE 04a British Gas 23 and 30 CE 05 RWE 34 CE 06 and CE 06a E.ON UK 39 and 50 CE 07 Grass Roots Groups 52 CE 08 ACS 56 CE 09 59 CE 10 OFT 62 CE 11, CE 11a and SSE 75, 84 and 86 CE 11b CE 12 and CE 12a Make IT Cheaper 89 and 93 CE 13 Scottish Renewables 94 CE 14 ICoSS 98 CE 15 Which? 100 CE 16 Silver Spring Networks 107 CE 17 Lynne Wycherley 109 CE 18 Carllion PLC 115 CE 19 National Grid 122 CE 20 and 20a Consumer Focus 128 and 138 CE 21 REA 155 CE 22 LGA 165 CE 23 Carbon Brief 169 CE 24 Energy UK 176 CE 25 EDF 180 CE 26 and CE 26a John Oddi 191 and 201 CE 27 203 CE 28 Ofgem 208 CE 29 218 CE 30 SmartReach 229 CE 31 and CE 31a Parliamentary Outreach 233 and 260 CE 33 First Utility 289 CE 34 295 CE 35 Alquist Consulting 299 CE 36 Correspondence between the Chair and various 301 publications

Written evidence submitted by DECC (CE 01)

1. DECC welcomes the ECC Committee’s enquiry into consumer engagement with the energy market and the opportunity to submit evidence. DECC also looks forward to the Committee’s findings, which will be of significant interest as we continue to put tackling consumer issues at the top of our agenda.

2. We know that households are struggling to cope with high energy bills, driven to a large extent by high fossil fuel prices. DECC has implemented a package of measures to help people, particularly the vulnerable, to take control of their energy bills and we continue to develop further measures.

3. The main components of this package are:

Helping vulnerable households Through Warm Home Discount, we have made it a legal requirement for large domestic energy suppliers to give discounts on energy bills to 660 000 of the poorest pensioners, plus other particularly vulnerable consumers. This is worth up to £1.1 billion from April 2011 to March 2015 and will help around 2m low income and vulnerable households per year.

Helping households save money and energy Around 3.5 million households should benefit from free or discounted insulation under the CERT (Carbon Emissions Reduction Target) extension. We are also developing new measures to assist households – - In the forthcoming Green Deal, energy efficiency measures that save households money will be provided by trusted businesses, installed by accredited professionals. The innovative Green Deal financial mechanism eliminates the need to pay upfront for energy efficiency measures and instead provides reassurances that the cost of the measures should be covered by savings on the electricity bill. - the new Energy Company Obligation will focus energy companies on improving the ability of the vulnerable and those on lower incomes to heat their homes affordably, and on improving solid wall properties.

Putting people in control of their bills The ‘Check, Switch, Insulate to Save’ campaign, which was launched at the Energy Consumer Summit hosted by the Prime Minister and Energy and Climate Change Secretary in October, has been instrumental in bringing interested parties together to help consumers to save money this winter. In addition the January Big Energy Week, co-ordinated by Citizens Advice, involved 138 outreach events to connect people to sources of help in managing their energy bills, reaching over 75,000 people in face-to-face contact.

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A voluntary agreement between Government and large energy suppliers means that all energy bills now tell people how to switch to their supplier’s cheapest tariff and suppliers have written directly to over 8 million receipt of bill customers to tell them what they could save by switching to direct debit. DECC continues to work with Ofgem on measures to improve the information provided on bills and annual statements, such as those referred to in paragraph 20, in order to increase transparency and aid consumers compare tariffs more easily.

Promoting Collective Purchasing Collective purchasing schemes have significant potential to help consumers exert market power by grouping together to secure better deals from energy suppliers. DECC recognised the potential for some schemes last Autumn, building on the work carried out by the Department of Business Innovation and Skills as set out in the “Better Choices, Better Deals”1 document published in April 2011, and has been working with key stakeholders to identify any barriers to the development of such schemes and any actions required to bring more schemes forward, with particular focus on maintaining consumer protection. We will continue to look at what the Department can do to promote Collective Purchasing schemes over the coming weeks and months.

How “energy literate” are consumers in the UK? For example, are most consumers aware of how much their bills vary according to usage? Are terms such as “kWh” understood by most consumers?

4. DECC has not commissioned any specific research on consumer “energy literacy” but a range of studies commissioned by the Department provide findings that are relevant to this issue.

5. The qualitative research report Empowering households – research on presenting energy consumption benchmarks on energy bills2 found that most participants did not tend to engage with their energy bills and only checked the document to see how much they have paid/ have to pay and to confirm the accuracy of meter readings. A few respondents looked at energy consumption given as kWh usage, even if they said that they do not understand what a kWh is (for many this was to compare energy usage against past bills).

6. Respondents in the same study expressed a preference for data on energy usage to be displayed on energy bills as the amount of money spent (£s), rather than the amount of energy consumed (kWh). This reflected participants’ lack of familiarity with the term kWh and lack of understanding of the level of energy consumption reflected in a certain kWH usage.

1 http://www.cabinetoffice.gov.uk/sites/default/files/resources/better-choices-better-deals.pdf 2 http://www.decc.gov.uk/assets/decc/11/cutting-emissions/behaviour%20change/2136-empowering- households-research.pdf

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7. Lack of engagement with energy bills was also evident from the Evaluation of the delivery and uptake of the Carbon Emissions Reduction Target3. Lack of engagement with bills was a common reason given as to why respondents could not tell whether energy efficiency measures had led to cost savings.

8. Despite a lack of engagement with, and understanding of, energy bills, consumers claim to have a high awareness of their energy use and to be concerned about energy prices.

9. A national survey carried out in 2010 for the Low Carbon Communities Challenge project found that 63% of respondents always or often think about energy use in the home while 7% do not think about energy use in the home at all. The same survey found that 37% of respondents said they/their household had been very or fairly worried about paying their energy bills in the last 12 months (up to March 2010).

10. These issues are of significant interest to DECC and we will continue to build our understanding and awareness through customer research and policy evaluation.

4 which allows users to try out different options for the UK energy system, including more or less nuclear, more or less wind energy, more or less home insulation, more or less shift from cars to public transport and so on. In each case the calculator shows the impact on , energy demand, carbon emissions and, in the latest update, costs. The data and calculations underpinning the 2050 calculator are public and have been open to scrutiny and challenge by everyone. There are three interfaces to the calculator: an excel version for experts, a complex web interface for enthusiasts and a simple version (known as My2050) for the public. So far approximately 85,000 people have used the simpler version and 63,000 people have used the enthusiasts version. We are currently working with other countries including China to develop similar tools for them.

To what extent are consumers aware of the different components that make up their energy bills and the relative contribution of each aspect? (e.g. wholesale costs, transmission and distribution charges, environmental/social policies and VAT)

12. DECC has not commissioned any specific research on the awareness of consumers regarding the different components that make up energy bills and the relative contribution to the overall cost of each aspect. The research cited in our response to the previous question does, however, suggest that there is a general

3 http://www.decc.gov.uk/assets/decc/11/funding-support/3339-evaluation-of-the-delivery-and-uptake- of-the-carbo.pdf 4 http://www.decc.gov.uk/en/content/cms/tackling/2050/2050.aspx

Page 53 of 298 lack of awareness of such detail given that consumer engagement with their energy bills is generally low. 13. We do ensure that information regarding the components of bills is widely available through publication, alongside the Annual Energy Statement, of an annual assessment of the impact of all energy and climate change policies on gas and electricity prices and bills paid by households and businesses. Each annual assessment includes a breakdown of a current household gas and electricity bill by their constituent parts (wholesale costs, transmission, distribution and metering costs, energy and climate change policy costs and VAT). The last assessment was published on 23 November 20115. Accompanying this, DECC also published a blog entry6 which aimed to address some of the public misconceptions about how much energy and climate change policies are currently contributing to bills.

14. Ofgem publish information detailing the individual components of an average household energy bill in their quarterly Supply Market Reports7 as well as occasionally publishing more concise factsheets with similar information in more detail.8 In addition, individual energy suppliers also from time to time publish their own breakdowns on their websites or in their Annual Reports. The figures across the multiple sources are broadly consistent with each other.

To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this?

16. As set out above, DECC has committed to publish an updated assessment of the impact of all energy and climate change policies on gas and electricity prices and bills paid by households and businesses each year alongside the Annual Energy Statement. The last assessment was published on 23 November 2011. Each annual assessment includes detail of the drivers of changes (both historic and projected) in retail energy prices as well as an analysis of the impact of policies and a range of wholesale price trajectories on energy prices and bills at regular intervals to 2030.

17. In addition, the Climate Change Committee published a report assessing the main drivers of the recent trends in energy prices9 and Ofgem cover these issues in their quarterly Supply Market Reports and factsheets.10

5 http://www.decc.gov.uk/en/content/cms/meeting_energy/aes/impacts/impacts.aspx 6 http://blog.decc.gov.uk/2012/01/12/the-impact-of-energy-and-climate-change-policies-on-a-household-energy- bill-in-2020/ 7 For example, Appendix 3 of their December 2011 Supply Market Report (available online at: http://www.ofgem.gov.uk/Markets/RetMkts/rmr/smr/Documents1/SMR_Dec_2011.pdf). 8 Their most recent factsheet was published in January 2011 and is available online at: http://www.ofgem.gov.uk/Media/FactSheets/Documents1/updatedhouseholdbillsjan11.pdf. 9 Household Energy Bills, December 2011 (Available online at: http://www.theccc.org.uk/reports/household- energy-bills).

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18. DECC has not commissioned any specific research on consumers’ awareness of future projected levels of energy prices and bills, but these issues are of significant interest and we will explore opportunities to build our understanding and awareness through customer research and policy evaluation.

What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary?

19. Switching tariffs and/or supplier can be a quick and easy process, taking around three weeks – but only around 15% of household consumers switched supplier in 2011. Ofgem, in its Retail Market Review, has identified that the vast number of tariffs available makes it difficult for consumers to compare suppliers’ offerings. It also found consumers have problems understanding the information suppliers send out, including bills and annual energy statements. Suppliers tend to use different terminology and set out the information in their communications to consumers in different formats, which may also act as a barrier to switching suppliers. That said it should be noted that switching supplier is not the only indicator of consumer engagement in the market. Remaining with the same supplier, but switching tariff, is an equally valid indicator of consumer engagement.

20. Under Ofgem’s tariff simplification proposals suppliers will be restricted to offering only one standard tariff per payment method with Ofgem setting a standing charge and suppliers free to set the unit rate for each standard tariff. Non-standard tariffs will be permitted only if they are fixed duration, have fixed terms and conditions and suppliers will not be allowed to change the price without the consumers agreement in advance. All tariffs will have to be accompanied by a tariff information label which will be standardised across all suppliers. Ofgem is also proposing that suppliers should use standardised language and formats for bills and annual statements, with the annual statement including a prompt to customers that they may be able to reduce their bills by switching tariff and/or supplier.

21. These measures will bring greater transparency and make it easier for consumers to compare tariffs and engage in the energy market. Ofgem’s research also revealed a widespread disillusionment with the retail energy market, so there is a risk that simplified tariff and billing information may not be sufficient to encourage all consumers to engage in the energy market. It will be important that implementation of the proposals is accompanied by a far reaching communication campaign to explain to consumers why the regulator is requiring suppliers to make changes to their tariffs and the way they communicate with their customers, and to explain how consumers can benefit. Once implemented it will be important that Ofgem monitors and evaluates the effectiveness of its proposals.

10 Ofgem Factsheet 108, Why are energy prices rising?, October 2011. (Available online at: http://www.ofgem.gov.uk/Media/FactSheets/Documents1/Why%20are%20energy%20prices%20rising_factshee t_108.pdf).

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22. In addition to confusion around tariffs and a lack of understanding of the key information that might inform a switching decision, wider research shows that barriers to switching include the fact that customers tend to be passive and may be put off by the hassle (or perceived hassle) involved in switching suppliers. This is something which may also need to be addressed in encouraging consumers to switch. The growth of collective purchasing/switching initiatives may provide an easier route to switching supplier and the implementation of Midata (being led by the Department of Business, Innovation and Skills) to provide a downloadable version of energy consumption data could also be significant in removing one of the hassle factors (the need to have an energy bill to hand when switching).

Will Ofgem’s proposals (including on standard tariffs and greater transparency of information published by energy companies) help to increase public trust in energy companies?

23. Ofgem’s proposals to simplify tariffs and the communications that suppliers send their customers, such as bills and annual energy statements, will bring greater transparency and should help to build trust in energy companies. In addition, Ofgem is proposing to incorporate its standards of conduct into an over-arching licence condition that will require suppliers and their representatives to adhere to standards relating to transparency and treating consumers fairly.

24. It is encouraging that suppliers are taking action to rebuild consumer trust in advance of Ofgem implementing its proposals. SSE recently announced that it was reducing the number of tariffs it offers from 68 to 4. British Gas has also embarked on “an honest conversation” with its customers about energy prices and plans to simplify its tariffs into a new structure to make them easier to navigate.

25. Joint initiatives such as the Consumer Energy Summit (held in October 2011), and the Check, Switch and Insulate to Save Campaign are an important way to improve transparency and help increase trust in energy companies. An important outcome of the summit was ‘Big Energy Week’, in which Citizen’s Advice organised a series of 138 locally based events, where consumers received practical, face to face advice, on tariffs, switching and energy efficiency. In all over 75,000 consumers were reached through Big Energy week.

26. We welcome Ofgem’s proposals to improve the transparency of energy accounts, following a review by BDO (the audit and accountancy firm). BDO found that “the methodologies used by energy companies are broadly fair and appropriate” but that there was a “lack of consistency reflecting differing business models” which led to a lack of comparability.

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27. Implementation of these proposals to improve comparability of large energy company accounts will be a good step forward, but further steps are needed to tackle poor liquidity and improve price transparency in the electricity wholesale market. Ofgem have recently published proposals to improve the liquidity of the wholesale markets and these proposals are a positive move. DECC has said that we will act if the structural barriers to entry are not addressed by the steps taken by Ofgem.

28. We will continue to work with Ofgem, consumer groups and the energy industry to identify ways in which we can increase public trust in the energy companies.

To what extent are consumers aware of policies such as , smart meter roll out and Ofgem’s Retail Market Reform that could affect the way they use energy in their homes and their engagement in the market? And what are their perceptions of the schemes?

29. In early 2011, DECC commissioned three pieces of research11 designed to understand consumer response to the Green Deal. Since the Green Deal is a future initiative yet to be market tested, the research covered initial reaction to the overall concept and core elements.

30. The results showed that the main attractions of the Green Deal for people are lower energy bills, a warmer, more comfortable home and not wasting energy. Some of the features perceived as less attractive were the overall cost of the improvements, the length of the payment term, the hassle/physical disruption of making improvements and uncertainty about the costs being on the energy bill of the property.

31. Peoples’ preference for taking out a Green Deal was driven by the perceived need for an energy efficiency measure. Particularly appealing aspects of the Green Deal were the tailored onsite assessment, and easily identifiable, skilled and regulated installers.

32. Mass rollout of smart meters does not start until 2014 and currently there is no imperative for a high level of consumer awareness at this moment. Indeed, some energy suppliers have cautioned that too much early promotion could lead to a level of demand for smart metering that could not be met, risking consumer disenchantment.

12.

11 http://www.decc.gov.uk/en/content/cms/consultations/green_deal/green_deal.aspx 12 http://www.ofgem.gov.uk/Sustainability/Cp/CF/Documents1/Smart%20Meters%20report%20final.pdf

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34. To deepen its knowledge, the Programme has commissioned both quantitative and qualitative research to help assess consumer awareness and support for smart metering, the results of which are expected this Spring. We expect to carry out further research over the coming year to track awareness and explore particular aspects in more depth.

What are the potential implications of a lack of consumer awareness in these areas?

Green Deal

35. In respect of the Green Deal, a lack of awareness would limit take-up. However we do not expect consumers to be aware at this stage since there is no action they can take under the Green Deal, and energy suppliers are still delivering their obligations in relation to improving energy efficiency of homes under the existing, different schemes. We would expect knowledge and awareness of the Green Deal to start to grow once the market opens.

Smart Meters

36. The rollout of smart meters requires installations in 28 million homes and 2 million businesses, so a high level of awareness and acceptance will be necessary to ensure access. Projected benefits from the rollout of smart meters are £18.7 billion in present value over the next twenty years, with consumer energy savings and related carbon savings accounting for around 40% of these benefits. A lack of awareness around smart metering and energy efficiency would put delivery of these benefits at risk.

37. The Programme has been working on the development of a strategy for consumer engagement. The Government will publish a consultation on the strategy shortly. It will include proposals for building consumer awareness and ensuring support for smart metering.

Is greater consumer education needed and if so, who should take responsibility for this, who should deliver it and how should it be delivered?

39. Since then, as referenced above, we have launched the Check, Switch, Insulate to Save campaign on the direct.gov website. In January Citizens Advice co- ordinated Big Energy Week campaign with over 100 events taking place around the country to help consumers identify the support that is available to help them reduce their energy bills - including the support available from suppliers to help them insulate their homes.

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40. We will continue to work with Ofgem, consumer groups and energy suppliers to help improve their understanding of and therefore help them choose the best tariff for their own individual circumstances.

Green Deal

41. We would expect knowledge and awareness of the Green Deal to start to grow once the market opens. At this stage very little promotional activity is happening, since as yet it is not possible for consumers to have a Green Deal. Our expectation is that Green Deal Providers will drive much of this awareness- raising as they market their products, although the Government will also be running a web and telephone advice service.

Smart Meters

42. Work on the consumer engagement strategy for the smart meters rollout has shown that different parties are best placed to deliver different aspects of engagement. For instance, individual energy suppliers are the primary interface with consumers, with a crucial role to play at the point of installation. They will also be marketing new energy efficiency products and services based on smart meters. However, the work has also confirmed that there is a case for some centrally-managed activities. For instance, there will need to be co-ordination with a wide range of third parties, such as charities, housing associations, local authorities and NGOs who are more credible messengers and are well-placed to support vulnerable households, plus local green groups who can motivate action among environmentally-concerned consumer segments. The forthcoming consultation on the smart metering consumer engagement strategy will seek views on the best way of delivering this centrally-managed activity.

What impact does the media have on public perceptions of energy bills?

43. There are a number of public misconceptions surrounding the drivers of energy bills and the impact of Government policies on energy bills which have been fuelled by recent media reporting, including:

- The claim that Government policy costs, rather than rising wholesale costs of fossil fuels, are the main driver of recent price increases. Wholesale energy costs account for roughly half of a household energy bills and have been the largest driver of the recent rises in energy prices. - Confusing electricity prices with energy bills – the impact of policies on electricity prices is significantly larger than the impact of policies on energy bills for two main reasons. First, the impact of policies which help to save energy will offset the increase in prices. Second, more than half an average household energy bill relates to gas which is subject to much lower policy costs than electricity.

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- The costs of policies such as the Renewables Obligation (RO) and Feed-in- Tariffs (FITs) as well as the costs of electricity network investment faced by retail energy suppliers are generally annualised and recouped over all UK electricity consumption – in the case of network investment, over 20 years - of which household consumption is just one third. Some media reports have assumed these costs are paid for entirely by households and therefore exaggerated the impact on household bills.

44. DECC estimates that the costs of these policies represent around 7% of the current average household dual fuel bill, consistent with Ofgem’s estimates. These largely relate to policies designed to improve the energy efficiency of our homes, reduce our reliance on fossil fuels and provide support with energy costs for eligible low income and vulnerable energy customers.

45. Accounting for the efficiency savings policies have already delivered and the Warm Home Discount some households benefit from, the average household dual fuel bill in 2011 was estimated to be around 2% higher than it would have been if policies were never introduced. Projecting to 2020, energy and climate change policies are estimated to lead to household dual fuel bills which are, on average, 7% lower than if policies were never introduced. This is because the effects of policies which help households to save energy will more than offset the necessary cost of investing in new capacity and greater efficiency.

46. We have aimed to address these misconceptions through multiple channels: through the Annual Report on the impact of Government policies on energy bills and prices, published alongside the Annual Energy Statement; through the DECC blog; and also by discussing with interested parties directly. The recent Climate Change Committee publication on household energy bills and Ofgem’s Supply Market Reports also helped to dispel some of these misconceptions.

What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies?

47. DECC funds policies from both levies and general taxation. Every policy and funding issue is different and is considered on its merits, in discussions between HMT, DECC and other Government Departments.

48. Broadly speaking the benefits of levies are: - They provide the necessary flexibility where costs of operation are uncertain. The levy can be regularly adjusted to help manage this uncertainty and natural variations in the cost as technologies come on stream - A levy on energy suppliers can also be fair; it places the cost on those (consumers) that will benefit from the diversity of supply, flexibility and cost that DECC’s policies deliver. - Through the Levy Control Framework it is possible for the government to carefully manage the overall cost of the set of levy funded policies. As set out in the HMT document Control framework for DECC levy-funded spending the purpose of this framework is to make sure that DECC achieves its fuel

Page 1012 of 298 poverty, energy and climate change goals in a way that is consistent with economic recovery and minimises the impact on consumer bills

49. It should be noted that although levy funded policies operate differently to some others, they are still considered part of the Government’s public spending framework, managed by HMT. March 2012

Page 1113 of 298 Written evidence submitted by uSwitch.com (CE 02)

Executive summary uSwitch.com is the leading independent price comparison and switching service for household energy in the UK. We have been helping consumers to compare energy prices and switch to a better deal for over ten years during which time we have developed a deep understanding of the consumer experience of the competitive market.

We regularly undertake consumer research and we have shared key findings in the evidence given below. All of our research indicates that apathy in the market is down to lack of consumer confidence. Consumers have been set adrift in a competitive energy market without having the education, knowledge or understanding to be able to make it work for themselves. This is being compounded by the poor quality communications they receive from their suppliers and by suppliers’ own response to privatisation, which is to offer an ever-increasing and confusing array of tariffs.

Our research shows that three quarters of consumers (75%) find energy bills complicated. There is a complete lack of understanding about future prices and bills, and the potential benefits of smart meters, Green Deal and other important developments that could help people to reduce their energy use and costs.

We also recognise that there are some basic obstacles, such as lack of understanding of the switching process along with fears such as losing supply while switching, which are also holding consumers back.

This is why we believe that to get the level of consumer engagement needed to make this market fully competitive, in addition to Ofgem’s remedies, other steps need to be taken as well to underpin consumer confidence.

1. Energy literacy and consumer understanding of energy bills There is a low level of energy literacy amongst consumers in the UK and this is proving to be a major barrier in getting households to engage in the market and to actively manage their energy

Page 1412 of 298 costs. This lack of literacy ranges from not understanding the process of switching to people not even understanding their energy bills.

As a result they do not have the confidence to navigate what is perceived to be a complicated market. This is why there is such a high level of consumer apathy, with too few households benefitting from competition and too many falling victim to supplier mis-selling.

The issue boils down to consumer education and poor communication by energy suppliers. Our research shows that three quarters of consumers (75%) find energy bills complicated. 68% find them harder to understand than any other household bill and only four in ten (40%) find it easy to work out how their energy company has calculated their bill. This is despite the fact that energy bills should be accessible to all.

Suppliers seem to be failing to communicate on a basic level with their customers – only 39% of people think that their energy bills are written in plain English. This is deeply concerning given that the average household energy bill today is £1,259 a year, accounting for a sizeable chunk of a typical household budget. Moreover, households have varying levels of numeracy and literacy skills and it could be argued that by overcomplicating bills and the information they provide, energy suppliers are adding to the financial exclusion of many vulnerable and disadvantaged households.

At the opposite end of the spectrum are banks and building societies, where almost three quarters (72%) of consumers find their bills and statements simple and straightforward to understand. The banking industry is arguably just as complicated as the energy industry, and yet personal finance companies generally seem to be issuing customer-friendly information in a format that most people can understand – just 41% of consumers find credit and store card bills confusing.

Our findings suggest that the energy industry is lagging behind other sectors in being able to communicate simply and clearly with customers and this is leaving consumers disadvantaged. If they are to be able to manage this aspect of their budget and be able to make informed decisions in the market, they need to be able to understand basic information such as their consumption, spend and tariff details.

Ofgem has sought to overcome some of these issues through the introduction of annual statements. However, consumers have told us that in their current format these statements are not fit for purpose. Just 36% say that their annual statement was clearly labelled as such,

Page 1315 of 298 while just 39% say that the information it provided was useful. Less than one in ten (9%) thought that it contained different information to their regular energy bills while 16% of recipients actually found their annual statement confusing.

Annual energy statements are supposed to provide households with clear information and guidance to help them to ensure they are on the best deal, however just 23% of recipients say this information was on their annual statement and was easy to find.

This tells us that Ofgem needs to go one step further in providing templates for annual statements and bills that suppliers have to adhere to. Both have a key role to play in creating greater transparency and in giving consumers the tools and information they need to switch. This information now needs to be prescribed with the format and layout standardised across all suppliers. It is absolutely in the best interest of consumers for suppliers to follow a best-practice template.

In short, energy bills are a key link in the communication chain between suppliers and their customers, but with consumers not understanding their bills this link is broken. As a result, they are not getting the information they need to start bringing the cost of their energy down. This lack of understanding will also have a knock-on effect on the positive impact of smart meters and consumer take-up of the Green Deal.

2. Consumer awareness of future prices and bills It is difficult for consumers to be aware when there is no real clarity on this point. Figures like £200 billion investment have been used, but there is no real clarity about how this might impact on consumer bills. The projections that have been issued publicly are confusing, inconsistent and focus on a net impact on bills, which assumes a high take-up of energy efficiency measures. This cannot be assumed as the take-up of energy efficiency depends on consumer education. People need to understand and buy-into the benefits, have an ability to pay for the measures or to understand where to get funding for them (e.g. through CERT or the future Green Deal) and trust that a free measure is just that.

Similarly, until decisions are made regarding the Electricity Market Reform, it is difficult to work out what the cost implications might be for consumers.

However, what we do know is that when energy bills hit £1,500 a year the majority of people will no longer be able to afford the energy we need. At this tipping point, 77% of households will be rationing their energy, 59% will be going without adequate heating and 36% will be

Page 1416 of 298 forced to turn their heating off entirely. To put this in context, the average household bill today is £1,259.

It’s also important to note that over a quarter of households (28%) are already struggling to afford their energy bills and almost a third of consumers (32%) say that household energy is already unaffordable in the UK. Given this, we believe it is vital that consumers are given simple and straightforward information about future energy prices along with the message that they can start to protect themselves by making sure that they are paying the lowest possible price for their household energy and by using less of it by becoming energy efficient.

3. Barriers to switching The main barrier to switching is a lack of consumer confidence as we outline in point 1 above. Consumers are ill-equipped to deal with a market that is over-complicated and difficult to navigate and are being severely hampered by the poor quality of the communications they receive from their supplier. It’s not surprising that so many consumers give up.

Anecdotally we know that many consumers don’t even know that they can switch and many appear to think that they will lose their energy supply in the process of switching or would need to have a new meter fitted.

In June 2011, we asked consumers for their feedback on Ofgem’s key proposals to reform the market. The results demonstrated the depth of the problems consumers encounter in the energy market and the strength of feeling these engender. Typical hurdles identified include confusion caused by the array of tariffs offered by suppliers (87%) and lack of understanding over how energy prices are calculated (69%). Over half (51%) say that people don’t switch because they don’t know how to use available information to assess their options.

Because of the complexity of tariffs, complicated bills and difficulty getting information they can use, consumers perceive changing energy suppliers as being more difficult than changing other household essentials such as telephone, mobile phone and broadband. Only switching bank accounts or mortgage lender is considered more difficult.

Page 1715 of 298 apathy in the energy market – get to the root cause of this and we will see consumer engagement increase.

Ofgem’s reforms will only go so far – there also needs to be a concerted effort to educate and support consumers many of whom have never had the concept of behaving like a consumer in a competitive energy market explained to them. This is especially true of older and more vulnerable households because they typically have a low level of knowledge coupled with a high need for help and support, which makes them more vulnerable to mis-selling by doorstep, face- to-face or telephone salesmen.

In addition to the remedies outlined by Ofgem, we would also urge it to consider the following steps too: • Reducing the length of time it takes to switch supplier • Mandatory communication during the transfer process • Enable independent and impartial advisors to assist consumers to find the best deal at face- to-face events • Ofgem to develop a set of standards covering price comparison sites, which will give consumers confidence in comparing prices.

4. Trust Ofgem’s proposals will go some way towards helping consumers. But rebuilding public trust in energy companies will take a lot more time and effort. Trust has been badly knocked over the last few years because of well-publicised incidents such as mis-selling and the effect of this has been an increase in the ‘better the devil you know’ syndrome, which may also explain why switching numbers have dropped over the last few years.

The companies themselves need to take responsibility for this by viewing Ofgem’s proposals as the bare minimum they should be doing to make their products and services simple, clear and easy for people to understand. This will require a cultural shift and a lot more listening to customers, but by doing this wholeheartedly and demonstrating a genuine willingness and commitment to transparency, suppliers will eventually be able to win the hearts and minds of consumers again.

Of course, competition has a key part to play in this. Greater transparency should result in more consumer participation. As more people start to engage, the companies will have no option but to adapt and to start behaving like customer-centric businesses competing to win customers as in any other open market.

5. Consumer awareness and potential implications

Page 1618 of 298 There is low consumer awareness of policies such as the Green Deal, smart meter roll out and Ofgem’s retail Market Reform. We are particularly concerned about the current lack of information being given to consumers about the Green Deal and smart metering as the success of these schemes hinges on consumers actively participating.

Just 45% of people know what a smart meter is. Of those who have heard of smart meters, 52% have got their information from the media, compared with just 19% who have received information from their supplier. There is a lot of misleading information around and the industry is leaving a vacuum that the media is now rapidly filling with stories likely to put consumers off smart meters rather than educate them about how to use them to reduce consumption.

There are similar issues around Green Deal and if they are not tackled properly through a co- ordinated consumer education programme take-up could be extremely disappointing. This is especially important if the Green Deal is to help more disadvantaged households as they will need help and support to understand how the scheme works and how it will benefit them. If they don’t understand the scheme they are unlikely to engage, just as we have seen with the energy market.

It’s also important to consider recent allegations that Feed-in Tariffs were only helping wealthier people. If Green Deal is to help a diverse range of households, including the fuel poor, it has to be easy to understand and well communicated. We would like to see an industry taskforce set up to spearhead all communications with consumers about these important schemes. DECC, Ofgem, suppliers, Energy UK and services such as our own all have a part to play in delivering the key messages and activities to support these vital education campaigns. All need to be singing from a common hymn sheet.

6. Media impact The impact of the media on public perception is significant and any public education campaign must attract and sustain the attention and support of the media.

7. Levies on bills Levies on bills can be regressive and it could be argued that it is fairer to pay for environmental and social policies out of general taxation. What we do know is that many consumers (and certain media such as the Daily Mail) resent environmental levies adding to the already high cost of household energy bills. However, it could be argued that environmental costs should be applied to bills on a rising scale so that the largest users pay the most while those consuming lower amounts of energy pay the least. March 2012

Page 1719 of 298 Written evidence submitted by Ovo Energy (CE 03)

For over 18 months Ovo Energy has pressed Ofgem to develop effective retail competition and improve consumer trust in energy companies, limiting the price differentials between the median and often loss-leading lowest tariffs on the market, as just one example.

We believe that recent announcements from both British Gas and Scottish & Southern Energy demonstrate a real willingness to change in this area but we maintain that Ofgem is not moving quickly, comprehensively or robustly enough to ensure reform in many of the areas that were identified in the Retail Market Review published last Summer - and to which we responded last month.

Our response below focuses on the following areas which we believe are most central to reforming the industry for the better and improving the market for consumers:

• How much consumers are aware of the make up of their bill and aware of future costs

Our proposal is that every energy supplier should be obligated to breakdown where their customers’ money goes, just as we have done since we started in September 2009. If it’s easy for us, why can’t all other suppliers introduce the same level of information?

On a related subject of the amount of information provided to consumers, the tariff information label proposal within the RMR is a good idea, and it will help to benefit consumers in the long run. We believe this is a sensible way to allow consumers to accurately and easily compare tariffs and products; the more information that is provided at the point of signup the better.

However, this must be officially audited, under strict guidelines, and not simply outsourced to a consumer group. This should instead be managed by Ofgem and taken from a randomised selection of each supplier’s customers. This will allow a fair and random representation of the supplier’s customer base and will allow a more accurate understanding of what their customers think.

We still think that there is a real need to increase the amount of information available to customers as this will only help to improve trust and confidence with the energy supply market and will help to ensure that customers are always able to easily and accurately compare suppliers and products.

Over the last three months in particular there have been many projections as to the amount an energy bill will cost in the future. Can the Government produce a quarterly forecast to ensure the accurate picture is told on a regular basis?

• The Green Deal We believe that the Green Deal presents a positive opportunity for consumers to be more energy efficient and for suppliers to support them in doing this. However, we have a number of concerns about the proposals, which have the potential to negatively impact market competition and levels of consumer trust.

There are currently low levels of trust in the energy industry and so any new initiative, including the Green Deal scheme, needs to reassure consumers that their investment is safe and right for them. To ensure this: o We believe that there should be an obligation for Green Deal advisors to inform a customer if there is a cheaper energy tariff for them; o For full peace of mind for consumers, we also want to see insurance-backed warranties on all installations, independent of the Green Deal plan terms;

Page 2018 of 298 o Interest rates on Green Deal plans should be fixed (not variable between providers) and repayment terms simple. Consumers must have confidence that they will not be liable for unexpected costs or confused by complex and variable arrangements. Doing this will ensure that there is trust and simplicity in the scheme at the outset, meaning it will be easy to understand and that uptake for the scheme is high. o We support the Golden Rule but stress that it must be adhered to throughout the duration of each agreement and that the duration is relative to the guaranteed lifetime of the measures installed. We question whether and how much consumers will be recompensed if the rule is broken by the provider.

Finally, we are calling for clarity on which organisation will administer the Green Deal.

• Smart meter roll-out To summarise where we think the status is: there is no interoperability agreed, there is no firm timeframe agreed for the roll-out; some customers and energy suppliers will be able to opt-out; and there is no agreement (that we are aware of) from the Big 6 that they will comply with the Which? campaign ‘no selling, just installing’. As a result we remain highly concerned about the future for smart meters and think we are a long way from consumers clearly understanding the benefits of smart meters and the choices they face.

• RMR – Will Ofgem’s proposals encourage behavioural change? It is the job of the industry to help consumers on the journey to change the way they think about energy and how they choose their supplier. The Retail Market Review asks a lot of good questions but many of the proposals are not, in our opinion, fit for purpose.

The RMR neglected to cover or propose how to address recent counter-competitive practices employed by many of the major suppliers. We find it very disheartening that this is not mentioned in the review and wonder why there are no firm proposals to prevent this type of behaviour.

Instead Ofgem has retained the option to refer the supply market to the Competition Commission for investigation, particularly on the area of tariffs and prices. If they are unwilling to robustly regulate the suppliers on this subject then we believe the investigation should begin.

If the market was truly competitive, with smaller suppliers given an equal seat at the ‘high’ table, then smaller suppliers would flourish and it would be easier to effect regulatory change for the benefit of consumers.

• What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies? Levies carry the real risk of being ‘invisibly absorbed into consumers’ bills, with the potential for more distrust about where all our money goes. As we said earlier, our proposal is that every energy supplier should be obligated to breakdown where their customers’ money goes, just as we have done since we started in September 2009. Any additional levies or indeed general taxation need to be robustly justified with the proceeds reinvested directly into energy efficiency, reporting exactly where that money is being invested on a regular basis.

• Tariff proposals We believe that Ofgem’s tariff proposals do not go far enough and we question why the proposal for a set standing charge is limited only to a suppliers ‘Standard’ tariff. If this is broadened to encompass all tariffs, this will only help to make it easier for the consumer to understand and compare offers. Whilst we appreciate that Ofgem do not want to limit consumer choice, we argue that it will only work to increase confidence in the offers available as customers can more easily understand if they are on the best deal. This will also work to encourage competition and customer switching rates. We have further comments around this which will be addressed in further detail in response to Ofgem’s new consultation on the standardised element of tariff structure.

Page 1921 of 298 We will happily provide any further clarity on the above where necessary. March 2012

Page 2022 of 298

Written evidence submitted by British Gas (CE 04)

British Gas is the UK’s leading supplier of energy and energy services, supplying half of UK homes with electricity or gas. We install more energy efficiency, decentralised energy systems and smart meters than any other supplier.

As the unit cost of energy increases, it is essential consumers have full confidence in the market-place. We welcome the opportunity to respond to this inquiry.

Executive Summary • The UK energy market remains in good health according to many measures of engagement, with amongst the lowest prices in the EU; high levels of switching, a significant and rising number of players in the market place and low profit margins.

• General understanding of the market is good: 8 out of 10 of our customers understand their bills; and 86% strongly support recent changes we made to simplify their tariffs. There is a strong understanding of the value of energy efficiency, with 84% of customers recognising, unprompted, it will save them money.

• However, there is rising concern about energy prices, impacting confidence that customers are on the best deal for them. We are therefore proposing four steps to increase both understanding and engagement in the energy sector.

• First, all stakeholders must have “an honest conversation” about why prices are rising, to ensure such rises do not further erode consumer trust in the market. British Gas is developing an external cost tracker to help customers understand the drivers of price changes.

• Second, bills must be accurate and meaningful as possible. The smart meter rollout is essential to deliver this.

• Third, tariffs must be simple to understand, without impacting choice. British Gas has a number of initiatives to bring transparency, simplicity and comparability to the tariff market, including:

o Simplifying our tariffs to just two types: variable and fixed.

o Giving our customers an online tool, showing the costs, benefits and fees associated with each tariff. We plan to build on this work by offering a simple metric shown on annual statements to help customers compare prices across tariffs.

• We are deeply concerned that Ofgem’s Retail Market Review (RMR) proposals would sacrifice essential choice and innovation in the market-place, and that the costs to consumers of Ofgem’s proposals have not been quantified. We believe there are far more cost effective ways of improving tariff comparability. We have called on Ofgem to instead:

o require all suppliers to adopt pricing structures that are based on a “standing charge” and “single unit rate” format o standardise the way in which suppliers offer discounts to customers on tariffs; and o introduce new obligations on suppliers to provide additional tariff information in a standardised way (both a price comparator metric, and a tariff information label).

Page 2123 of 298

• Our fourth step is to ensure customers understand the value of energy efficiency. Steps should be made to ensure that the Green Deal is made exciting; that there are minimum standards in private rented properties, and that every opportunity is taken to market the Deal, including during the smart meter install.

1. The UK Energy Market

When discussing consumer engagement, we want to highlight that, overall, the GB energy market remains in good health against a range of indicators. Specifically:

Pricing

. The GB market remains amongst the most competitive in the world; with the lowest domestic gas prices of the EU15 and amongst the lowest electricity prices[1].

. There is no evidence of excess profitability. Ofgem report that 2010 energy retail margins were 5.7% in gas and 0.3% in electricity[2]. Dual fuel margins have averaged 1.6% in the five years since 2005[3], with several domestic supplier facing “low or negative”[4] margins. It is unsurprising that the focus of Ofgem’s Retail Market Review (RMR) has shifted away from supplier profitability.

. Despite repeated claims of a “rocket / feather” approach to prices, independent research shows this is not the case[5]. Ofgem itself has acknowledged that its analysis is highly dependent on modelling assumptions.

Switching

. A substantial proportion of consumers have switched supplier. Between 71% and 79% of customers have switched (depending on the supplier).[6] We do not accept Ofgem’s analysis that 60% of customers have never switched energy supplier[7], and believe this is underestimated by some 30 to 40 percentage points, given that our share of the gas market alone has fallen from 100% to 43% since the introduction of competition.

. The GB energy market continues to maintain relatively high levels of switching, with rates at around 20%.[8] This compares favourably to most other international comparators, including Sweden, Norway, and US comparators such as Texas. Switching rates are far higher than in the banking and mobile phone industries (switching rates of 3% and 9% respectively) and second only to car insurance in the UK.[9]

. As Ipsos Mori noted for Ofgem in January 2011, “There has been further equalisation of the rates of switching between different social and demographic

[1] http://www.ofgem.gov.uk/Media/FactSheets/Documents1/Why%20are%20energy%20prices%20rising_factsheet_108.pdf [2] Financial Information Reporting: 2010 Results, page 19. [3] See Appendix 9 of the March 2011 Retail Market Review – Findings and Initial Proposals. [4] Ofgem, Financial Information Reporting, 2010 results. [5] Analysis commission from NERA by the Energy Retail Association (ERA) accompanied our previous consultation response. [6] Morgan Stanley Research Energy Survey 2011. [7] Ofgem Retail Market Review (March 2011) paragraph 2.48. [8] http://ec.europa.eu/consumers/strategy/docs/retail_electricity_full_study_en.pdf [9] Of those consumers who did not switch supplier in 2010, 77 per cent explained that this was because they were happy with their existing supplier (March 2011 Retail Market Review, Appendix 6 §1.25).

Page 2422 of 298 groups. It is no longer possible to identify statistically significant differences in switching rates among “vulnerable” customer groups”. [10]

Tariffs

. As recently as December 2010, DECC concluded that the retail energy market was delivering “increased choice in tariffs and services” which enable consumers to switch suppliers[12].

Whilst we believe the energy market is delivering against many measures, we recognise there is a clear need to build on existing initiatives to ensure all customers feel confident in the market place.

2. An “Honest Conversation” about energy prices

A February 2012 survey for Ofgem noted that “[consumer] engagement [is] shaped by two key factors: Level of energy literacy; and a belief that worthwhile savings can be made from switching” [13]. Price is “overwhelmingly” the primary reason for switching.[14] British Gas believes that rising prices are the primary reason that consumer concern over the energy market has increased.

Perceptions that the sector is “profiteering” due to higher prices are unjustified and undermine trust in the market place[15]

We are concerned that consumer nervousness over profiteering will only increase as the unit cost of energy rises. According to Ofgem, the unit cost of energy could rise by between 23% and 52% by 2020. A Populus opinion poll found that only one third of respondents were willing to pay an additional GBP100 to ensure energy security and lower carbon emissions. Just 1% would pay an extra GBP500[16].

All parties should do more to ensure that the debate is framed around why prices are rising and what steps can be taken to mitigate this.

British Gas has begun some work explaining energy pricing to customers.

Care must also be taken to limit the costs of policy on the consumer bill in the first place. If social and environmental policies such as Electricity Market Reform and the Energy

[10] Ipsos Mori, January 2011 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/IpsosMori_switching_omnibus_2011.pdf [12] Electricity Market Reform, DECC Consultation Document, Dec 2010, paragraph 9, page 20 [13] http://www.ofgem.gov.uk/Sustainability/Cp/CF/Documents1/Ofgem%20Consumer%20First%20Panel%20Year%204.pdf [14] Ipsos Mori, January 2011 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/IpsosMori_switching_omnibus_2011.pdf [15] For example, this Committee criticised this methodology used by Ofgem in December for suggesting via a “snapshot” that energy sector profits margins were up by 733%, without actually explaining that this showed “significant volatility in profit margins without giving a true reflection of the money the big six were making” (British Gas profits fell by 30% last year). Ofgem has now discontinued this methodology, but the 733% figure is still being used by Compass and the Independent’s “Big Six Fix” campaign [16] http://www.populus.co.uk/uploads/download_pdf-120611--Energy-Poll.pdf

Page 2523 of 298 Company Obligation are to be recovered through a levy on the bill, all parties must be honest about the true cost of that support, why it is needed and why general taxation is not a more progressive means of collecting the cost.

3. Ensuring accurate bills

Estimated bills were the number one issue raised by British Gas’s Consumer Panel. Customers dislike the fact they can lead to price shocks when bills are readjusted[17].

Government must continue to move forward with the smart meter rollout to ensure all customers receive accurate billing, as estimated bills are a fundamental building block for energy market engagement.

Smart meters are essential for accurate billing, but how the bill is presented is also important in helping customers engage. British Gas’ bill has received high marks from both Consumer Focus and Ofgem for clarity. Internal research from August 2010 also suggests that 8 in 10 customers agree that their bill is easy to understand.

Nevertheless, we agree with Ipsos Mori’s findings that: “many standard energy market terms are not well understood [such as] tariff, kWh, fixed, standard, standing charge, two-tiered pricing and estimates.” Much of this language is regulated and means little to consumers.[18] We have added a web tool to support customers in decoding this language: http://www.britishgas.co.uk/business/manage-account/Howtoreadmybill.

Ofgem should work with industry and consumer groups to find clear, easily understood phrases to explain all the relevant parts of the bill.

Customers have also told us that too much information can be as great a barrier as too little. Ofgem must use the opportunity of RMR to rationalise regulated information.

British Gas is conducting a large-scale research project to fundamentally reorganise billing, and will be presenting Ofgem with ideas shortly.

4. Enabling customer choice through simpler and more transparent tariff structures

In November 2011, British Gas simplified our tariffs to two types: variable and fixed. Customers now go through a three-step process, choosing whether they would like a variable or fixed tariff, paper or online bills, and how they would like to pay. British Gas internal research has shown that “83% of customer found the new tariff structure good, very good or excellent. Only 6% did not support the changes.” We have also stopped offering loss leaders, to ensure we better serve existing customers.

Customers have access to a simple document or online tool, showing the costs, benefits and fees associated with each tariff. We will build on this work by offering a simple metric shown on annual statements to help customers compare prices across tariffs

[17] According to uSwitch (April 2011) 40% of households have been hit with an unexpected bill because their supplier's 'estimated reading' did not matched the 'real reading' [18] Consumer Focus’s report “Informing choices” noted that, throughout the groups, the vocabulary of energy is almost always about cost rather than the amount of electricity or gas used; the term 'kilowatt hours' is a barrier, in itself, to communication

Page 2426 of 298 British Gas recognises there is an opportunity to simplify tariffs further. We, nevertheless, have serious concerns however that Ofgem’s current proposals to in this area[19] will actually decrease in customer engagement and increase customer bills.

We have instead proposed to Ofgem a series of remedies which would significantly improve customer engagement with the energy industry. Specifically Ofgem should:

• Require all suppliers to adopt pricing structures that are based on a “standing charge” and “single unit rate” format – and ensure that any restriction on the number of tariffs suppliers are permitted to offer customers strikes an appropriate balance between choice and simplicity; • standardise the way in which suppliers offer discounts to customers on tariffs; and • introduce new obligations on suppliers to provide additional tariff information in a standardised way (both a price comparator metric, and a tariff information label).

5. Ofgem’s Retail Market Review (RMR) proposals: our concerns

Ofgem have recently published their proposals to improve customer engagement in the energy market. We do not believe the case for this is strong, as we have set out above.

We are deeply concerned that Ofgem’s proposals sacrifice choice for clarity in a way which is unhelpful and expensive for the consumer:

The RMR suggests that:

• Suppliers will be restricted to one standard (variable) tariff per payment type

• Suppliers will no longer be allowed to give consumers discounts for these standard tariffs, even where these reflect cost savings (e.g. dual fuel discounts, or discounts for paperless billing). Consumers will be required to sign up to a fixed term contract to obtain these discounts. Removing these discounts could cost £75 per customer per annum.

• Because just one standard tariff is allowed, tariffs that encourage demand side response (time of use tariffs) will be banned, as well as specific “green” tariffs unless customers sign up to a fixed term contract.

• A standing charge would be set by Ofgem for standard tariffs, with suppliers able to change only the unit price. Suppliers would not be able to offer lower standing charges to customers who would prefer this (e.g. lower volume consumers).

• All other tariffs would be fixed term. Unlike standard tariffs, there will be no restrictions on the number of fixed price tariffs a supplier can offer, nor the duration or type of fixed plan that they offer.

These proposals represent a radical and disproportionate intervention in the retail market, unjustified by the evidence presented. At a time when regulators in other countries and sectors are looking to increase the ability of competition to deliver benefits to consumers, Ofgem’s proposals will abolish some of the UK’s most important innovations.

[19] As set out in the Retail Market Review.

Page 2725 of 298 Our research shows that:

• Once customers understand that Fixed Term Contracts (FTCs) may result in termination fees (for leaving the contract early), only 28% of customers have a preference for FTCs.

• interest in online, dual fuel discounts, time of use and green tariffs falls by 50% if customers are told they require a FTC to get them

• twice as many customers would prefer suppliers to be able to offer existing discounts and propositions on all tariffs. It is therefore highly likely that driving more customers towards FTCs will reduce switching (particularly given the unpopularity of termination fees). Ofgem notes that: “the removal of dual fuel ‘discounts’ from standard tariffs carries a risk of frustrating a significant number of consumers and possibly hampering our attempts to promote engagement.”

• 37% of customers would have a worse opinion of the energy industry if they need to move to FTCs in order to obtain the discounts they currently receive on more flexible contract types.

• Vulnerable customers have less access to the data necessary to find a suitable fixed term contract, or negotiate the range of offers available in this part of the market, and are likely to be disproportionately impacted by these proposals.

• Ofgem’s proposals are internally inconsistent. They contend that their proposals will improve tariff comparability, and yet, if customers are to retain the range of discounts / choice they have today, they will need to choose from an increasingly wide and complex range of fixed term contracts. If Ofgem had attempted to quantify the costs and benefits of their proposals, this inconsistency would have become apparent.

As Professor Stephen Littlechild argues, “There is no reason to believe that [Ofgem’s proposals] will encourage more customers to engage actively in the market…There is more reason to believe…the opposite… it would deprive customers of the option to choose standard tariffs with zero standing charges, online discounts and dual fuel discounts, and green tariffs…At a stroke the four most distinctive and customer‐valued tariff innovations since the introduction of retail competition would be banned… How can this be consistent with promoting competition and the interests of customers?”[20]

Littlechild contends that consumers were most engaged with the APR style comparison metric – the introduction of which British Gas strong and proactively supports.

We recognise the need to bring tariff transparency to the market, but would urge the Committee to consider our remedies laid out above. These would avoid most of the unintended consequences and costs implicit in Ofgem’s core RMR proposals, delivering major improvements in tariff comparability without overly restricting choice from the tariff sector. These changes would also preserve many of the main ways in which we encourage customer engagement today.

6. Engaging consumers on energy reduction

British Gas is the UK’s leading supplier of energy efficiency and decentralised energy. We are “going early” on the Government’s Green Deal, and have conducted a large amount of

http://www.eprg.group.cam.ac.uk/wp-content/uploads/2012/01/Ofgems-Procrustean-Bed-23-Jan-2012.pdf

Page 2826 of 298 research in this area.

Energy efficiency can make dramatic changes to consumption and therefore bills.

• British Gas customers have cut their gas consumption by an average of 22% in the past five years – and saved £322 a year. [21]

• The largest impacts on natural gas consumption come from insulating cavity walls (18.3% cut); installing an A-rated energy efficient boiler (18.0%) and by insulating lofts (13.8% cut).

• British Gas customers could save a further £3.6 billion over the next five years if they invest in energy efficiency measures.

Customers do understand the value of energy efficiency, and interest has increased since the economic downturn:

• Customer research (September 2011) demonstrates that saving money is the primary motivation for engaging in energy efficiency: 84% highlighted tackling rising energy prices; 78% said to save money; 58% said cutting costs due to the recession and 43% highlighted environmental concerns.

Making these benefits tangible (especially cost savings) is critical if we are to engage consumers on energy efficiency. This is another reason why British Gas strongly supports the introduction of smart meters, as it will allow consumers to fully understand how they use energy, and therefore how they save it

It is also important that the Government has a thoughtful consumer engagement strategy around the Green Deal in particular, as our research suggests insulation alone is considered too boring – and with too much hassle factor – to engage many consumers.

Government can help to drive consumer demand for the Green Deal through ensuring a wide range of measures are covered, allowing blended financing, and supporting a range of fiscal and regulatory drivers including stamp duty rebates and bringing forward minimum standards in private rented properties from 2016.

Microgeneration and renewable heating systems will be a key driver of demand for the Green Deal, and these should be fully financeable under a Green Deal.

Every opportunity to engage with customers should be taken. Suppliers should be able to promote the Green Deal and offer to arrange assessor appointments when they are in the home installing smart meters, which will act as a catalyst for consumer behavioural change.

British Gas supports the Energy Company Obligation, which will link to the Green Deal, in order to support the most vulnerable householders, and the hardest to treat homes. To maximise the identification of eligible households, and to reduce search costs and deliver the programme as cost effectively as possible, we would welcome the early expansion of data- sharing to allow us to directly make offers to eligible households, and to increase the use of referrals from trusted parties such as the NHS.

March 2012

Page 2927 of 298

Further written evidence submitted by British Gas (CE 04 a)

Thank you for inviting me to give evidence on Tuesday 4th September to the Energy and Climate Change Committee. At the start of a new Parliamentary session energy literacy and wider energy issues remain, as ever, at the forefront of our agenda.

Since British Gas provided written evidence in March, the terms of the Inquiry have broadened from examining energy literacy to evaluating consumer engagement, as a whole. So with this in mind, I thought it might be helpful to highlight a few additional points.

As a starting point, we believe that energy literacy is currently inadequate. Customers are not as aware of their energy usage and the drivers of energy bills as they could or should be, particularly when faced with rising unit prices. We believe there are a number of steps which suppliers and policymakers must work on together to help customers better engage with the energy market.

First, British Gas believes that underpinning all customer engagement must be an understanding of the drivers of energy prices. Without this, trust in the energy sector will continue to be undermined. • In order to improve energy literacy, British Gas is now including graphics in all our bills to explain the costs of getting energy to your home (attached). • Customers can see that the elements within the control of British Gas - operating costs and profit - account for only 15% of the average dual fuel bill. • Despite media reports, our profits and operating costs have remained broadly flat over the past four years – as has our annual profit margin, at 5% after tax

However, major components of the bill that we don’t control continue to rise. From 2011 to 2012, British Gas faces: • A 14% increase in commodity costs, adding £71 to the average dual fuel bill • A 12% increase in transmission and distribution (T&D) and metering charges (“delivery to your home”), adding £32 to the average dual fuel bill • A 34% rise in the costs of Government social and environmental obligations such as CERT, CESP and the RO, adding £19 to the average dual fuel bill.

Whilst we welcome policies to increase investment in renewable technology and improve Britain’s housing stock, we expect our spend to double in the next 3 years. Unfortunately, many customers are not accessing the energy efficiency schemes they are not only entitled to, but are paying for via their energy bill. I would appreciate the Committee’s thoughts on the best way to drive awareness in this area.

Second, we need to help customers understand that, whilst unit prices may indeed rise, bills don’t have to, if we invest more in energy efficiency. British Gas is the UK’s leading supplier of energy efficiency programmes and is piloting delivery of the Green Deal and of smart meters. • In 2011, the Centre for Business and Economic Research (CEBR) conducted the UK’s largest ever study on energy efficiency. This found that British Gas customers have cut gas consumption, on average, by 22% over the past four years.

around the rate of inflation.

PagePage 28 30 of of298 298

• The CEBR report also showed that whilst some customers are doing a great deal to improve the energy efficiency of their homes, some are doing very little. Fitting loft and cavity wall insulation, and an energy efficient boiler produced a 44% decline in gas consumption over the four year period. If all customers adopted similar readily- available energy efficiency measures, they could save over £7 billion over the next five years.

Unfortunately, awareness of energy efficiency programmes remains low: a recent poll found that just 17% of people have heard of the Green Deal. I welcome the chance to discuss with the Committee how best to make energy efficiency programmes relevant and engaging.

Third, it is important that all customers feel that they understand energy tariffs and are on the right tariff for them. British Gas has introduced a number of initiatives to improve transparency and simplicity, including: • Writing to all our customers every six months to ensure that they are on the best deal. • Simplifying our tariffs to just two types: variable and fixed. • Introducing a new single unit rate to allow easier price comparability. • Giving our customers an online tool showing the costs and benefits associated with each tariff, and offering a simple table to help customers compare prices across tariffs.

Once all tariffs become simple and easy to compare, energy literacy and consumer engagement will improve.

Fourth, British Gas will take the lead in ensuring that customer bills are as accurate and informative as possible. • We believe that the smart meter rollout is essential. To ensure customers only pay for the energy they use, we have now installed over 600,000 smart meters. This data is now allowing customers to receive bespoke energy efficiency advice. • Smart meters will also enable the next breakthrough in energy literacy – smarter bills, itemising which appliances have contributed to the bill.

In summary, I do think British Gas is making good progress in this area – but we can’t do it alone. We need further support from policymakers and other energy companies to explain why prices are rising, and how energy efficiency can help. We need to help consumers develop their energy literacy, an understanding of why energy cost are increasing, and a recognition that changing behaviour can result in lower bills. Some customers are already benefiting from these insights. One measure of success for this Committee may be once every household in Britain fully understands what makes up energy bills, and how to reduce them.

I look forward to discussing these points with you on Tuesday

September 2012

PagePage 29 31 of of298 298 18 September 2012

Member, The Energy Select Committee House of Commons SW1A 0AA

Dear Energy Select Committee Member

Further to my recent evidence to the Select Committee I wanted to write to you about switching; we had a lively debate in the session. I feel that it's important that the various claims about switching are validated with facts, and that switching between energy suppliers is understood as only one indicator of an energy market working in the interests of consumers.

Members of the Committee maintained that they were in the majority having never switched. Mr Owen asked me to provide the facts and figures to prove him wrong. I can confirm the following in relation to British Gas:

• At the opening of the retail gas market to competition in 1997, all 19 million gas consumers - by definition - were on a standard variable, gas only tariff with British Gas. • We now have 9 million gas customers, including those gas legacy customers from above. Of these, 81% have previously either switched gas supplier or moved house. further choice by adding electricity, paying by an alternative method or choosing a cheaper tariff. On that basis, together, 91% of our gas customers today have taken some action. • Finally, just 800,000 (4% of the original 19 million) have made absolutely no change. They are still in the same situation in the same property on a standard variable, gas only tariff and on the same payment type with British Gas, and are clearly a small minority.

I was surprised that the Committee appeared to be under the impression that "60% had never switched". Having done some investigations, I have discovered that this figure came from a statistically unreliable survey carried out by Ofgem. British Gas has criticised this analysis in the past (as have other parties), not least because the headline figure is mathematically impossible - we had 100% of the gas market at privatisation and now have 40%.

I note that following the criticism Ofgem has stopped quoting this statistic. Unfortunately the 60% figure appears to have become something of an urban myth. Ofgem themselves, in 2008, concluded that 75% of consumers had switched either gas or electricity.

I am always happy to look at the British Gas account of a Committee member or constituent to see if they could get a better deal. If anyone is still in the 4% minority then I guarantee that I can save them money. Any customer may be able to save money in one phone call or visit to our website. We are now contacting our customers regularly to suggest that they do this. Indeed, if a customer chooses to pay by direct debit, manage their account online and/or take dual fuel, then British Gas saves money; we return the money we save to the customer in the form of a discount.

PagePage 32 30 of of298 298 Having reflected on our discussion, there are a number of wider points I'd like to make on switching:

It's not the case that 'all switching is good switching' I got the impression that the Committee feel that 'the more switching the better'. When I took over as Managing Director of British Gas in early 2007, more than 25% of customers a year were switching away from British Gas. That is now down to 8%. It is primarily because our customer service has improved dramatically. Our research frequently shows that the vast majority of our customers like us, trust us and want to stay with us. Research by Morgan Stanley shows that British Gas customers are less likely to switch than those of other suppliers. So I believe that this particular drop in switching is a good thing, not a bad thing.

Switching to a better tariff, product or payment method can be just as beneficial as switching to an alternative supplier In 2007, the amount of intra-British Gas switching (where customers change either tariffs, or the way they manage their accounts, or their payment methods) was virtually zero. In the past 12 months it has risen to 25%. And I think that this is a good thing too - it shows that our customers know that saving money in this way is possible and that we're making it easier for them to do so. Today, our customers expect us to work harder to keep their business, which we value. This all tells us that those customers are making choices, getting better deals and yet still want to stay with British Gas.

The recent drop in switching is not bad news There has been a recent drop in switching. We believe this is accounted for by improving customer service and an end to cold call, doorstep selling. Our customers told us that they disliked this intrusion. And although British Gas has not been involved in Ofgem's current investigations, there is no doubt that some consumers felt pressured or misled. That’s why British Gas was one of the first suppliers to stop the practice.

However, there are still 11 independent switching sites; many national newspapers (as well as other media and websites) also routinely carry information on the best energy deals available. We continue to work with Ofgem to make comparisons between energy companies easier - our recommendation of a common comparison metric (similar to the APR metric used in the finance industry) is part of this. We are also extending our activities with disadvantaged communities to ensure that those who benefit most from engaging in the competitive market continue to do so.

I hope that this information is useful. If you would like to know more or have any questions then please let me know. In terms of further discussions, we could do so formally or perhaps more informally. I would like to invite the Committee to visit one of our call centres where you can see first hand just how much help we provide, particularly to our more vulnerable customers. I will write to you separately with an invitation.

Yours sincerely

Phil Bentley Managing Director cc Alistair Buchanan, CEO, OFGEM

PagePage 33 31 of of298 298 Written evidence submitted by RWE npower (CE 05)

Key Messages

• RWE npower welcomes the opportunity to respond to the Committee’s inquiry, especially as the level of trust in the energy industry is currently at a very low point. An increased level of trust is key to increasing consumer engagement with, and interest in, both energy itself and the industry.

• RWE npower recognises that the industry has a huge role to play in increasing the level of trust consumers have and we are working on ways to do that which we will be able to share publicly in the coming months. However, Government and Regulators also have a vital role in promoting consumer engagement in energy and trust in energy providers. Continual public criticism of the energy industry engenders an atmosphere of mistrust which is unhelpful and, in some instances, counter-productive. It also has the potential to undermine delivery of Government policy and alienate potential investors in much needed energy infrastructure in the UK.

• In particular, the Government has two significant programmes of activities which are being rolled out in the near future, namely Smart roll-out and Green Deal and the Energy Company Obligation (ECO). Increased levels of trust in the energy supply industry will be needed if they are to be successful since the key to their success will be high levels of consumer engagement. For example our Smart trials have highlighted how difficult access can be even when the consumers concerned have volunteered to have the meter installed and are, therefore, by definition, engaged in the process.

• Smart meters are an enabler to provide customers with useful information – they do not in themselves lead to reductions in consumption. Evidence suggests that when customers have access to increased information about their consumption, many do adjust their consumption accordingly. However, this will only happen if suppliers are allowed access to the data obtained from them to help customers manage their energy needs in the most appropriate way. In the current climate of mistrust, many customers will be sceptical of allowing suppliers access to their data and this may jeopardise the carbon reduction benefits that can be realised through the mass deployment of smart meters.

• Generally, energy consumers tend to be passive and have shown little appetite for actively engaging in the energy market or taking control over their own levels of energy consumption. Energy is not considered to be an interesting topic of conversation and is relatively low down a consumer’s list of priorities. Suppliers, consumer groups, Government and Regulators all need to play a part in educating consumers about the importance of engaging more actively with energy – issues such as how we should generate energy in the future; what costs make up energy bills; how we can ensure we have adequate security of supply; the need for (and costs of) infrastructure investments; and how we can reduce consumption and keep bills as low as possible all need to be more routinely discussed and understood.

Page 3234 of 298 • RWE npower believes that engaged consumers can drive a competitive market and can save money (through switching supplier or tariff, or through energy efficiency) if they are given information and power to do so. In particular, comparative information about what other similar consumers do may increase levels of engagement.

• However, the provision of “customer average data and information” can be highly misleading as there is no such thing as an “average customer”. Personalised behavioural and property-specific information is what will enable customers to make informed decisions about their energy usage. We have carried out some modelling of the impact of energy policies on future bills which demonstrates how customers will experience very different evolution of their total energy bill over time depending on the fuel they use, the energy efficiency measures they have already installed and their current level of consumption.

• We need to develop a language and set of tools to describe and talk about energy usage. The technical nature of the language currently used tends to alienate consumers. Bills are cluttered with mandated, technical information such as “calorific value” which means they do not lend themselves to being a document that consumers want to engage with. The Energy Efficiency rating is perhaps part of the answer but it does not link simply and easily through to the life-time cost implications of purchase decisions. We need to talk about energy in financial terms - the savings or costs - because this is what people are interested in and what they understand.

• There are social and demographic dimensions to engagement and to understanding the costs of energy. Some vulnerable customers will need additional support in order to make informed decisions about the best way to buy and use energy.

Page 3335 of 298 Response to Questions

1. How “energy literate” are consumers in the UK? For example, are most consumers aware of how much their bills vary according to usage? Are terms such as “kWh” understood by most consumers? 1.1 Energy literacy varies across consumers. 1.2 If consumers were energy literate the uptake for insulation measures would have been much higher than it has been as they would understand the benefits of installing energy efficiency measures in order to save money on an ongoing basis. 1.3 While most consumers are aware that decreases and increases in energy usage result in decreases and increases in their bills, consumers are generally not aware how much their bills will increase precisely through changes in usage, for example how much it costs to run a particular appliance for an hour or what financial benefits there are from installing specific energy efficiency measures. 1.4 Research from JD Power shows that many consumers do not know how much they pay for utilities and some do not even know who their supplier is. 1.5 Research experience shows that terms such as KWh are not well understood by typical consumers or particularly useful because a consumer also needs to know the cost per KWh and be able to perform the appropriate calculation to work out the cost. Many customers wouldn’t have the mathematical abilities to carry out such a calculation, even if they had the inclination to do so. This is backed up by the fact that over 80% of prospective customers who use npower’s online quotation tool enter the amount of money they spend on energy, not consumption data.

2. To what extent are consumers aware of the different components that make-up their energy bills and the relative contribution of each aspect? (E.g. wholesale costs, transmission and distribution charges, environmental/social policies and VAT)

2.2 This tends to be almost the only piece of information that most consumers are interested in on the bill and research has shown that any additional information is seen as a distraction from this key piece of information.

3. To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this? 3.1 In so far as they think about it at all, we believe that, generally, consumers expect bills to rise although they would probably have a very limited understanding of the causes of these increases. What they do know is probably very heavily influenced by what they see or hear in the media. 3.2 Customers are also unaware of the proportion of their bill that is directly influenced by energy suppliers or that the greatest impacts over the remainder of this decade will come from the impact of government policies, taxes and trends in global commodity markets.

4. What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary? 4.1 Research would suggest the main barriers are the consumer expectation that switching is complex and has a high hassle factor and the view that all energy companies are the same i.e. “if I switch to the cheapest they will just raise their prices and I'll end up paying the same in the end.” If Ofgem mean the price transparency measures, this will stifle

Page 3634 of 298 choice and differentiation in the market (which drive switching) and lead to lower churn as consumers see the standing charge is the same and the unit rates are very similar.

5. Will Ofgem’s proposals (including on standard tariffs and greater transparency of information published by energy companies) help to increase public trust in energy companies? 5.1 Not necessarily because it remains to be seen whether Ofgem’s proposals will add materially to the extensive range of vehicles which already facilitate effective competition or whether, by imposing uniformity, at least in the evergreen market, Ofgem reinforces the misconception that energy suppliers are all the same which could lead to even lower levels of engagement as well as reduced churn and competition. We do, however, fully recognise that there is a need to reduce complexity in the energy market and therefore support the general aims of Ogem’s proposals.

6. To what extent are consumers aware of policies such as the Green Deal, smart meter roll out and Ofgem’s Retail Market Reform that could affect the way they use energy in their homes and their engagement in the market? And what are their perceptions of the schemes What are the potential implications of a lack of consumer awareness in these areas? 6.1 There will be a lack of engagement, trust and take up. However, the schemes have not launched yet and this is likely to be a low interest area for consumers. When there is something tangible to demonstrate to consumers, awareness could be raised quite quickly, however, it will be important for DECC, Ofgem and suppliers to work together to ensure positive customer experiences by making sure that the schemes work from the outset. 6.2 In terms of the smart meter roll-out, consumer engagement is critical if the predicted carbon savings are to be made due to behavioural change. Smart meters do not in themselves make consumers use less energy – only their own actions (using the additional information a smart meter will provide them) can do that.

7. Is greater consumer education needed and if so, who should take responsibility for this, who should deliver it and how should it be delivered? 7.1 DECC, Ofgem, independent consumer bodies and suppliers all have a role to play in this although it should be done in partnership wherever possible as consumers often don’t believe information that comes directly from suppliers. In particular, messages from suppliers around energy efficiency tend to be mistrusted (“Why would you help me use less of the products you sell?”) but land better when delivered by charity partners or other third party organisations. 7.2 As consumer trust in the industry is re-gained, however, this should become less of an issue.

8. What impact does the media have on public perceptions of energy bills? 8.1 This is probably the biggest influence on consumers and is not helped by low levels of knowledge about the way the energy industry works. Very often, it is a case of “not letting the facts get in the way of a good story” and this goes a long way to explaining the lack of engagement we now have in the industry. Essentially the message that consumers have received is that suppliers are all unscrupulous and make vast profits at the expense of their customers. With characterisation such as this, it is not surprising that consumers are not engaged. 8.2 Energy consumers are not well-served by a debate that says “all suppliers are greedy and incompetent”. We need a discussion about, and understanding of, the relationship between wholesale prices of oil and gas and the retail prices of gas and electricity. Customers should be made aware that the vast majority of the costs that an energy supplier faces are determined by international markets.

Page 3537 of 298 8.3 Customers do not connect the stories about the significant current and future levels of investment in the sector reported in the media with their bills, with the possible recent exception of wind energy.

9. What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies? 9.1. Pros: levies are not seen as a direct tax and can be proportionate; consumers who use more, pay more assuming the levy is on a per unit and not a per customer basis, although vulnerable customers in poor housing can have high energy bills. 9.2. Cons: levies are a hidden tax, which could be seen as destroying consumer trust, can lead to inefficient markets and higher costs of delivery. Taxes have the advantage of being be less regressive, since more vulnerable customers pay no or lower amounts of tax.

March 2012

Page 3638 of 298

Written evidence submitted by E.ON (CE 06)

SUMMARY

• Consumers need to become more engaged with energy markets so that they understand what they can do to reduce the financial (and ultimately the environmental) impact on them of higher prices.

• Customers need better information on how they can reduce their energy consumption through energy efficiency measures. Our ‘Energy Fit’ campaign has had significant success in helping customers understand their home electricity usage and save energy and money. Suppliers have a key role to play here, as does Government. Improved energy efficiency is critical not only to help with household finances, but also to ensure the UK’s carbon reduction targets are met at an affordable cost.

• Customers also need to understand broadly the factors that affect the price of electricity and gas to them, including the proportion of the bill accounted for by wholesale energy purchase costs, and what proportion of the bill is accounted for by profit. This will help customers better understand reasons for price movements and have more confidence in the energy efficiency advice and support that their energy supplier is best positioned to provide.

• Customers also need to understand why prices are rising where this is caused by Government policy interventions and to enable them to regard these interventions as legitimate and justifiable in relation to the goals that the Government is trying to meet. This is similar to taxation, where the public also need to understand why taxes are rising (or falling). Without this, these interventions will lose political support and the Government’s policy goals will not be met.

• Effective communication will be particularly important to engage customers in policies such as the Green Deal and the successful roll-out of smart meters. Without this, delivery of these policies will be put at risk.

• Energy suppliers have largely themselves to blame for their current negative press because service standards overall have not kept pace with legitimate consumer expectations and suppliers have not communicated in a clear and simple way to their customers during a period of rising prices. We accept this and our Reset Review of all aspects of our relationships with our customers is aimed at addressing these issues.

Page 3937 of 298 can use energy more efficiently. This needs to be supported by Government, Ofgem and consumer organisations.

• Other parties also have a responsibility to communicate responsibly through the media. Ofgem and others who can influence public perceptions should of course be free to criticise energy suppliers but they also need to ensure that what they say is objective, measured and supported by the evidence. Over the last twelve months, there are many examples of statements in the media by Ofgem, politicians, and the press which are not supported by the evidence or are unnecessarily hostile and inflammatory.

We are sending under separate cover a folder of supporting evidence illustrating the work we are doing to help customers understand their energy bills and the steps they can take to use energy more efficiently.

Q How “energy literate” are consumers in the UK? For example, are most consumers aware of how much their bills vary according to usage? Are terms such as “kWh” understood by most consumers?

1 Most customers understand that a kWh is a measure of how much energy they have used and that the more they use the more they have to pay. However, a significant number do not. A recent survey1 suggested that 1 in 5 customers do not understand what a kWh is. There is almost certainly less understanding of what a kWh represents in terms of how much individual appliances use, and perhaps the fact that a kWh cannot be seen means that consumers find it harder to understand.

2 Most customers do understand that there is a relationship between energy efficiency measures and what they pay for energy. Four times as many customers cite cost savings as the incentive for investing in energy efficiency measures than cite environmental reasons. Providing more transparent information to customers about their energy consumption and account with us and about the energy industry is a key part of our Reset Review.

3 We have already improved navigation of our website, bringing all the tools that customers need to help understand their bills and reduce consumption into one place. This includes putting information about consumption reduction into language that resonates with customers, such as our Energy Menu or our “100 ways to save” guide.2 We are also providing more information on what a kWh is3 and a consumption calculator so that customers can understand what contributes to their bill.

4 One issue we need to address is how

1 Research conducted by OnePoll amongst 2,000 UK residents between 5-8 June 2010 2 See Supporting Evidence 3 See Supporting Evidence

Page 4038 of 298 were made by direct debit so there was no perceived need)4. This suggests that providing information in or with bills is not necessarily an effective means of communicating with customers and that other means of communication, for example through the media or through advertising, may be more effective. Media reporting of price changes by suppliers does lead to increased interest from customers. This is not an exact science but, on 11 January 2012 (the day EdF announced its price cut), we had 6% more calls than we had forecast.

5 It may also be more effective to work with partners to share information about energy as consumers may be more receptive to receiving information from an organisation which they are more confident in, or associate with more positive experiences than bill paying. For example, as energy partner to The Scout Association, E.ON will be sponsoring the Scouts’ Global Conservation Badge and producing an educational resource for Scout Leaders and Scouts. The resource will help Scouts attain their badge and will also provide a variety of fun and engaging energy-related activities to help young people understand energy. E.ON’s key objectives are to bring energy to life, engage young people with energy efficiency, encourage positive behavioural change, and inspire young people to influence others to do the same. The resources will be available on The Scout Association website and the activity will be communicated via various Scout Association publications.

6 Nevertheless it is important that customers who are interested in their energy bills can find out the information they need. We will be making more information about our energy bills available on our web site.

Q To what extent are consumers aware of the different components that make up their energy bills and the relative contribution of each aspect? (e.g. wholesale costs, transmission and distribution charges, environmental/social policies and VAT)

7 Consumers do have views on how their bill is made up but this is less from reading their bill and more from what they see reported in the media. Consumers do appear to have some understanding of the relative contribution made from different costs to their energy bill; for example 70% of our customers identified that network charges and operation costs accounted for some of the largest portions of the bill, after wholesale costs5. However, 1 in 10 consumers also believed, from what politicians, Ofgem, consumer groups and others have said or are reported to have said, that about half their bill is made up of energy company profits, whereas the current percentage is 5% or less (for E.ON it was 0.5% in 2010 for residential sales) and has been negative in the past.

8 The public’s general lack of understanding is partly because energy suppliers have not made energy bills clear enough. Over a third of people (35%) spend just one minute or less reading their energy bill and most people (74%) cite the reason for their lack of interest

5 E.ON Customer Panel 9,250 responses collected over a 10 day period in September 2011.

Page 4139 of 298 as being ‘they’re too hard to understand’.6 It is for this reason that we have tried to preserve the simplicity of bills in the face of Government suggestions for increased messaging on it, for example, around the cheapest tariff (which has appeared on bills) or neighbour comparisons.

9 As a result, we revised our billing format in 2010, working with customers to get a format that was simpler and easier to understand. During tests with our Customer Panel of our new format, 50% of people picked out the most vital information - how much they owed - in 7 seconds or less. We were the first supplier to make changes to our billing format. We also produced a bill jargon buster and online bill demo at www.eonenergy.com/yournewbill. However, we are not complacent, even after these improvements have been made, and we are looking again at simplifying the bill as part of our Reset Review.

10 We have also published a bill breakdown online as part of our Reset Review and have launched a Smartphone App which enables customers to manage their accounts, including viewing their bill and providing meter readings.

11 The energy bill may not be the best or only place to explain how customers’ bills are made up in detail, as customers tend to prefer bills which are simple to understand. However suppliers do need to provide a better explanation of what costs a bill reflects and what is causing rises or reductions in the price. We will be carrying out customer focus groups to understand how customers would prefer to receive this information. However our initial view is that we would not want to include this on the bill as it could undermine the ease with which customers can see what to pay, but we agree suppliers need to communicate more effectively to the media and to stakeholders such as politicians whose views are reported in the media.

12 We have been briefing MPs and journalists on energy prices and profits through an initiative we call ‘demystifying energy prices’. We feel there is also an obligation on politicians, regulators and others to ensure that what they say is supported by evidence, and to communicate objectively on the issue, notwithstanding the natural temptation to identify someone who can be blamed or to use the issue to further other interests.

13 We have also produced Facebook apps and YouTube videos which help customers understand energy profits, and energy prices in the UK compared to other European countries, and which provide an energy bill breakdown including the difference between wholesale and retail costs. We also recently took advertising space in national newspapers to raise awareness of the reasons behind rising energy prices and what makes up an energy bill7.

Q To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this?

6 Research conducted with 1,485 E.ON Customer Panellists between 9-15 April 2010. 7 See Supporting Evidence

Page 4240 of 298 14 Many customers understand that there is a relationship between the price of energy and the international price of fuels such as gas which is reported in the media, as they are similarly aware of the relationship between petrol and diesel prices and the international price of oil. However, in the case of energy bills for residential customers the length of energy company hedges in the forward electricity and gas markets delays the impact of global changes and is thus less obvious and harder to appreciate. Consumers may also be aware from the media that some Government policies are adding and will increasingly add to energy bills in the future8. While there are significant uncertainties about future energy prices, and it is important not to mislead customers, it is important for Government, suppliers and others to ensure that customers are aware of the risk that prices are likely to rise significantly over the next decade as a result of the cost of upgrading and decarbonising much of our energy infrastructure, and higher wholesale gas and power prices caused by rising global demand for fossil fuels.

Q What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary, and

Q Will Ofgem’s proposals (including on standard tariffs and greater transparency of information published by energy companies) help to increase public trust in energy companies?

15 In our view it is relatively easy for customers to switch supplier and 69% of E.ON customers have switched supplier and/or tariff in the last three years. The main reason for switching is to get a better deal, but a range of other factors also influence the decision, some of which relate to wanting a particular type of tariff or one with certain features. Reasons for not switching include the perception that any savings from doing so may be only short-term.

16 Our own research suggests that views amongst customers are divided as to whether switching is difficult or not. Those who find it easy have tended to use price comparison web sites. Those who have found it difficult have cited the large number of available tariffs.

17 We have already made a number of changes to make it as simple as possible for customers to switch, including redesigning our website and setting out our tariffs in three types of price plans – fixed, variable and green. We have also reduced the number of tariffs we have available to new customers by over a quarter to eleven.

Page 4341 of 298 18 We have provided detailed feedback to Ofgem on its Retail Market Reform (RMR) proposals and indicated that we will broadly support them. We have issued a press release to that effect and will be publishing information on our website, for customers, in order to raise awareness of possible changes that may result from Ofgem’s proposals.

19 We had some doubts about how Ofgem was planning to introduce reforms, through more intervention in a competitive market, and the evidence supporting their proposals is incomplete, but we recognise that change is needed to re-establish the industry's relationship with its customers and that some form of decisive action is required. Ofgem’s intention is to reduce complexity in the market, which is an aim we share through our own Reset Review. We therefore hope that Ofgem’s proposals will lead to more customer engagement and more trust in suppliers and we will work with Ofgem and other suppliers to help bring about this greater engagement.

20 It is likely that two markets will develop as a result of Ofgem’s’ proposals: a standard market where the price is both clear and the main factor that drives switching; and a fixed product market where features and benefits are important as well as price.

Q To what extent are consumers aware of policies such as the Green Deal, smart meter roll out and Ofgem’s Retail Market Reform that could affect the way they use energy in their homes and their engagement in the market? And what are their perceptions of the schemes? and Q What are the potential implications of a lack of consumer awareness in these areas?

21 There is limited awareness of the Green Deal, and awareness but some confusion about the smart meter roll-out. We have not tested awareness of Ofgem’s RMR proposals but it seems likely that awareness will be limited until there are firm decisions and suppliers implement the changes. However, there is a fundamental point that arises here: Ofgem’s proposals will affect nearly every household in the country and they must be communicated properly or they will fail and greater damage will be done to the industry’s reputation. Ofgem must not rush through these proposals as they will require systems and other changes and must be carefully managed and communicated so that customers understand what is happening in the market.

22 Research9 suggests that nearly two-thirds (63%) of the UK public are confused about smart meters and what they do. Only a third (37%) of respondents could correctly describe what a smart meter does. Under half of respondents (44%) were unaware that smart meters can help save money, but over half of respondents (53%) would reduce their energy usage if they had visibility of their consumption.

23 If the smart meter roll-out is to be delivered successfully, more effort will need to be put into explaining the benefits in terms of energy saving, particularly when accompanied by tariffs which enable customers to take advantage of different prices at different times of the

9 Research carried out by OnePoll with 2,000 respondents in August 2011

Page 4244 of 298 day, and accuracy of billing. Concerns about data protection and health effects will also need to be addressed. Suppliers support the programme and will need to communicate effectively the benefits of smart meters and how they can be used to reduce consumption and energy bills, as part of their role in ensuring that all customers as far as reasonably practical are fitted with smart meters by 2019. Government can support this by reassuring customers on data protection and health impacts.

24 If we are not successful in communicating with customers on these issues then the roll-out programme could be put at risk. Recent negative media coverage of smart meters has had a tangible effect on our efforts to install smart meters. On one day alone, we had to cancel about 60 appointments following calls from customers requesting cancellation and we have also handled many more enquiries where, after a discussion with the customer, they have chosen to continue with the installation.

25 Our current focus is on ensuring that customers understand the benefits of smart meters and that they are confident that they will receive a high level of service when their meter is installed and in the future. Responding to increasing concerns about specific issues such as mis-selling or interoperability, we published our Smart Metering Customer Commitments10.

26 There is little current awareness of the Green Deal but, when it is explained to them, our research suggests that consumers are supportive of the concept in principle and it is seen as particularly positive for those who cannot afford the upfront cost of energy efficiency measures. However, how it works in practice will be important and the perceived complexity of the offer appears to be a barrier and there is some scepticism that the savings from reduced energy bills will be enough to pay for the work. This is not unreasonable given that the terms on which money will be made available is as yet unknown. There is also some concern at the prospect of taking on what is, in effect, a long term loan and the impact this may have if customers come to sell their house.

27 To unlock demand we need to create awareness of what the Green Deal is and build trust in the scheme. This will require very active Government effort and support from those companies, including energy suppliers, who wish to become Green Deal providers. We see opportunities to drive demand by integrating the Green Deal with other schemes such as the smart meter roll out, engaging customers at a time when they may be more receptive to energy efficiency given the visibility of consumption that a smart meter would provide.

28 We welcomed the announcement in the Autumn Statement 2011 that up to £205M will be available to incentivise the Green Deal in the early years. Some early Government support for the scheme will help take-up from consumers and the availability of low interest funding will be crucial to its longer-term success. If this is delivered we would expect the scheme to gain momentum as customer awareness increases within individual communities. If it is not then the scheme will not deliver its intended objectives and the Government will need to consider alternative approaches.

10 See Supporting Evidence

Page 4345 of 298

Q Is greater consumer education needed and if so, who should take responsibility for this, who should deliver it and how should it be delivered?

29 Yes, greater consumer education is needed to ensure that consumers understand how to manage their use of energy, the reasons why energy prices are changing, and where prices are rising, what they can do about it to reduce the financial (and ultimately the environmental) impact on them. It is particularly important to ensure that consumers understand why prices are rising where this is caused by Government policy interventions and that they regard these interventions as legitimate and justifiable in relation to the goals that the Government is trying to meet. Both Government and suppliers have a role here.

30 It is also important that customers understand broadly the other factors that affect total energy costs, including the proportion of the bill accounted for by wholesale energy purchase costs and network costs and what proportion of the bill is accounted for by profit although the latter varies significantly amongst suppliers, and has in some cases been negative. This will help customers understand reasons for price movements and help ensure that customers have more trust in their suppliers. This in turn will help suppliers provide advice and support to customers to help them manage their energy needs as efficiently as possible. The obligation here rests on suppliers themselves although Government, Ofgem and other stakeholders also have a role to play.

31 Customers also need more information on how they can reduce their energy consumption through energy efficiency measures. We have had some success through our ‘Energy Fit’ campaign.11 This is designed to empower customers to understand their home electricity usage and help them save energy and money. It includes a free energy monitor, and over 350,000 monitors have been requested to date. The focus on the campaign is our Energy Fit survey12 which provides customers with a bespoke set of energy saving goals, based on the type of house they live in and how they heat and power their home. The campaign led over 126,000 of our customers to complete the energy survey to date and over 90,000 had reported that they had completed the energy efficiency goals set.

32 We also ran a “Watt Watchers” campaign for three years. This was a 12 week energy fitness challenge (via regional media) whereby customers were supported in making energy efficiency changes at home to reduce their energy consumption. In 2011, the winner of the challenge reduced her overall energy consumption by 28% in just 90 days. She should be saving around £270 a year on energy as a result. The campaign was also supported by social media activity, sharing tips through Facebook and YouTube.

Q What impact does the media have on public perceptions of energy bills?

33 The reporting of energy prices and related issues in the media has a major influence on public perceptions and encourages other parties to add their voice to those already

11 See Supporting Evidence 12 See Supporting Evidence

Page 4644 of 298 expressed. In our view the energy industry has not been very good at communicating its views collectively in the media and the current reorganisation of some industry trade associations is intended to ensure companies’ perspectives are more effectively represented. Suppliers, individually and as an industry, need to communicate more effectively through the media about energy prices, the reasons why prices have gone up or down and how consumers can use energy more efficiently.

34 In many respects energy suppliers have themselves to blame for their current negative press because service standards overall have not kept pace with legitimate consumer expectations and suppliers have not communicated in a clear and simple way to their customers during a period of rising prices. Our Reset Review is aimed at addressing these issues and some other suppliers have launched their own initiatives.

35 Nevertheless prices to UK customers continue to compare favourably with prices to most other EU customers and the UK market is significantly more competitive than that in most other Member States.

36 Other parties also have a responsibility to communicate responsibly through the media, particularly where they are in a position of authority or leadership. For example, Alistair Buchanan referred on Radio 4 to giving the energy companies a “left hook, then a right hook, and now we are going to give them a beating” when he launched Ofgem’s Retail Market Review proposals on 21 March last year. This language did not reflect the more measured and tentative comments in Ofgem’s written proposals, which were more reflective of the objectivity we would expect from an independent regulatory agency.

37 The Leader of the Labour Party described energy suppliers, in his Party conference speech on 28 September, as ‘predators’ and asserted that customers were being ‘ripped-off’ and that the market was ‘rigged’. These claims appeared to us difficult to justify objectively, given the modest profit levels13 in the sector. On the contrary, given the level of energy company investment in the UK, we would rather see ourselves in his preferred category of ‘wealth creators’. In 2010 E.ON invested £853M in the UK – in fact, for every pound we made in profit that year we invested £1.13.

38 On 10 February this year The Independent led with an article, in support of a Compass campaign, using misleading data on energy company profits. This showed by way of a graphic the different profits that the energy companies had made. However this did not compare like with like, with profits for the entire group being shown in some cases and UK profits in others. We have provided an explanation to the Independent as to why the way the story was reported was misleading, and written to those MPs who have supported the campaign. However the campaign has not updated the information on its website, nor has The Independent corrected the information previously reported.

13 In 2010 our margins across the entire supply business in the UK were 3.7% (0.5% in respect of domestic customers).

Page 4547 of 298 39 This rather fevered atmosphere has led us to support a Competition Commission reference into the sector as we would have confidence in the Commission’s ability to review the way the market operates on an objective basis. This environment has also made it difficult for individual suppliers to differentiate themselves in the market through improved performance given that we are collectively viewed, including by Ofgem, as the ‘Big 6’, despite major differences between the suppliers in terms of size, level of vertical integration14, price levels, profitability and service standards. For example, E.ON operates its business as a “disintegrated” entity, so that each of its supply and generation businesses operate effectively at arm’s length to each other and transfer pricing being done at market price. Other players, such as EdF and SSE, operate more integrated models. This failure to differentiate between the companies is unfortunate and we hope Ofgem will do more to reward suppliers who do well.

40 Ofgem and others need to be objective and measured in their comments to the media on the market, to ensure that customers are well informed about the state of the market and are not misled. We certainly welcome Ofgem’s efforts to improve transparency in the market and its regular snapshot estimates of supplier average net margins on supplying a typical, standard tariff, dual fuel customer for the next 12 months, published on its web site. Ofgem now intend to update this information on a weekly basis. There is much criticism which can be usefully directed at suppliers and it would be more productive to focus on this. The select committee has a key and influential role to play here in informing the debate by examining the evidence and setting out its conclusions in an objective way.

What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies?

41 The justification for the use of levies (whether these are explicit levies on suppliers or customers or obligations such as the Carbon Emissions Reduction Target (CERT)) is that the costs are borne by customers who mainly benefit in terms of, for example, the more efficient use of energy, lower carbon electricity or more secure electricity supplies, although these will have wider societal benefits too. They can also approximate to charging a cost of carbon (i.e. ‘polluter pays’) and even reinforce their objective, by increasing the value of energy saving.

42 There are two principal disadvantages. Firstly, these obligations or levies are not visible to customers so they may not appreciate that they make up part of the cost of their bill. This also applies to upstream taxes such as the carbon floor price which generators will pay but which, unlike VAT, most customers will not be aware of. (In this case, the tax increases everybody’s bills but its positive impact for customers or the environment is difficult to discern as any CO2 emissions saved within the UK will be offset by higher emissions elsewhere in the EU within the cap set by the EU Emissions Trading Scheme, and much of the benefit will go to existing nuclear plant operators. It has limited usefulness as an

14 For example Centrica has 43.1% of the residential gas market and 24.8% of the residential electricity market but has a 3.5% share of the generation market in 2011. EdF by contrast has 28% of the generation market but 12.7% of the residential electricity market and 7.9% of the residential gas market. (residential market data source Data Monitor July 2011)

Page 4648 of 298 incentive for new low carbon investment not only because few investors will commit substantial capital on the basis of a tax but also because the tax rate after 2020 is unknown).

43 Secondly, suppliers will pass costs on to customers based on usage as part of the unit price so that customers who consume more will meet more of the cost of these obligations (an issue with CERT is that the obligation is per customer, but we hope policy will change with the introduction of the new Energy Company Obligation (ECO), where we have suggested that the Obligation should be allocated on the basis of gas usage). While more affluent customers will tend to consume more than those on lower incomes, this is not always the case so some customers on low incomes will be paying more than those on higher incomes. A benefit of using general taxation is that the costs of funding measures will be funded by society in a more equitable way.

44 Research15 we have carried out into the views of customers on funding of environmental and social obligations suggests that over 80% of customers said they would expect Government to be funding schemes to help vulnerable people with their bills, with rather less but still a significant proportion (63%) agreeing that energy providers should fund them. However slightly more customers (77%) thought energy providers should be funding low carbon ways of producing energy than Government (75%). When told that environmental and social obligations accounted for about 5% of their energy bill, customers were, however, more supportive of levies which fund energy efficiency schemes and help for vulnerable customers than support for renewables or feed in tariffs for customers to generate their own energy. 42% of respondents felt that vulnerable people should not have to pay any levy and everyone else should pay an amount based on their usage.

45 In our view, it is questionable whether the costs of policies such as the Warm Home Discount, which have purely social objectives and which have no benefit for customers as a whole, should be met by levies on suppliers. In this case suppliers are redistributing money to the value of around £300M annually from all customers, including low income customers just outside the defined category, to customers on low incomes within defined benefit categories. However, the Warm Home Discount does not deliver any wider benefits to customers as whole and it would be more equitable to fund such policies through higher benefit payments, geared to energy costs, and funded out of general taxation. It would in our view not be appropriate to use suppliers to redistribute income on an even larger scale.

March 2012

Page 4947 of 298 Further written evidence submitted by E.ON UK (CE 06a)

Ahead of the Committee’s evidence session on 4 September, I thought that it would be helpful to update you and the Committee on further work which we have done to encourage customer engagement. This builds on the points made in the written evidence which we submitted in March.

Open

Speaking to customers during our Reset Review, we are clear that one way to improve customer engagement is to make it easier to get in touch with us. We therefore decided to move all our telephone numbers to local rate numbers to keep down the cost of contacting us and we have established a team of online “Twelpers” to help customers with their customer service problems via Twitter. We also have made changes to our website to make it easier to navigate and find key information.

We were also aware that our customers were frustrated that they often had to wait a long time for us to answer the telephone to deal with their questions. We’ve made improvements to our processes and as a result call waiting times are much improved – for example last week an average of 69 seconds before their call was answered. This is a considerable improvement given that waiting times in early June were over 5 minutes. customers were only waiting We’ve also committed to invest in extra support to make sure that we stay on top of call waiting times this winter.

Continuing with our focus on being available to help customers in a way which is convenient for them, we recently announced that we would return to the high street with a trial store in Nottingham. Colleagues working in the store, known as E.ON Open House, will be focused on answering questions from customers rather than sales. They will not be set targets for sales or lead generation.

Simple

Our Reset Review has also shown us that we need to make things as simple as possible for customers so that they are not dissuaded from engaging with energy because things appear to be too complicated.

We introduced a new simple single sheet bill in July, following feedback from customers who told us that they wanted the bill to just contain the basic information about their energy account and what they owed. We showed a range of bill designs to customer focus groups including versions with additional advice and their clear feedback was that this information should not be included on the bill.

We have also committed to further simplifying our tariff range and making it easier for customers to check that they are on the best deal for them. We plan to introduce a new tariff range in the autumn but we have already committed to having no more than five core products, and for our new non-standard tariffs to have a simple structure with a standing charge. We hope that this will make it easier for customers

Page 4850 of 298 to calculate how much they need to pay for the energy they’ve used and make comparisons with other tariffs. All standard products will transfer to this type of structure in 2013.

Knowledgeable

Finally, we know that customers want to be confident that they are getting the right answer from our advisors when they do get engaged and choose to contact us.

We want to be able to help our customers with practical energy efficiency advice to help them to save energy whenever they contact us. We’re therefore providing all of our customer service and field colleagues with externally accredited energy efficiency training, covering approximately 4,000 people.

We’re also carrying out training to support the launch of our new tariff range so that all our service and sales advisors will be able to check whether customers are on the best deal for them, no matter how or why a customer contacts us.

I hope that this is a useful update on the work that we are doing to try and encourage and help customers to engage with energy.

I look forward to answering the Committee’s questions and discussing how we can work together to increase consumer engagement in energy.

August 2012

Page 4951 of 298 Written evidence submitted by the Grass Roots Group (CE 07)

Executive Summary

This submission focusses on customer engagement with the Green Deal.

In dealing with questions outlined in the Committee’s terms of reference, we highlight the significant role we see for the employer as a route to promote consumer engagement, and boost take-up for the Green Deal. We believe that this powerful vehicle for consumer engagement has been overlooked in this area of policy, and that a simple, tested and trusted pre-existing model could be utilised to ‘supercharge’ the Green Deal from the outset.

This memorandum seeks to illustrate the following key points: . Improved consumer engagement is vital to the success of the Green Deal . Alternative channels to promote consumer engagement will facilitate this . Winning consumer trust is vital to promoting engagement with the Green Deal . Increasing consumer awareness to promote engagement . It is important to ensure engagement with consumers from different socio-economic backgrounds . For policy success consumer engagement must promote sustainable behavioural change . Success in enhancing consumer engagement will drive market growth and boost the economy

We further illustrate how the employee-benefits model, as utilised to great success in the Cycle to Work and Employer Supported Childcare Schemes, offers a compelling solution to each of these central issues.

1. Improved consumer engagement is vital to the success of the Green Deal

1.1 We agree with the Committee that consumers will play a vital role in determining the success (or otherwise) of many of the policies and measures necessary to deliver secure, clean and affordable energy in future. This is particularly true of the Green Deal, which through promotion of energy efficiency measures seeks to mitigate rising energy costs to the consumer. The success of the Green Deal will be determined on levels of consumer engagement, and, ultimately, take-up.

1.2 The scale of consumer engagement required to ensure the Green Deal is a success is huge. Yet the Government’s own impact assessment states that consumer response is ‘highly uncertain’.

1.3 Measures to facilitate greater consumer engagement will be required to ensure the successful implementation of the Green Deal and the achievement of ambitious emissions reduction targets.

2. Alternative channels for consumer engagement

2.1 Huge potential exists to use employers as an additional and far-reaching route to increase consumer engagement and uptake of energy efficiency improvements.

2.2 Employee benefit schemes have a proven track record of driving government agendas with cost- effective results: the Home Computer Initiative; Employer Supported Childcare; and the Cycle to Work Scheme each demonstrates the success of employee benefits schemes in this regard. We believe that working through their employer provides a natural channel for consumers to engage with the energy market. 2.3 Both the Cycle to Work and the Employer Supported Childcare schemes have a proven track record of simplicity of administration for consumers, employers and the Government.

Page 5250 of 298 2.4 To allow this model to be utilised in support of energy efficiency measures, it is necessary for the Government to incentivise employers by allowing appropriate products to efficiency measures to be a non-taxable benefit when purchased through the scheme.

2.5 We believe there is significant latent demand for ‘green’ employee benefits offerings as companies seek to boost their CSR schemes and respond to employee interest in energy efficiency measures. Employee benefits models also offer the employer a means of boosting employee loyalty and staff retention.

3. The importance of winning consumer trust to promote engagement

3.1 Trust in energy companies is low, as evidenced in Ofgem’s current focus on improving consumer trust in energy companies.

3.2 Lack of trust in energy companies, as major providers of the Green Deal, creates a particular barrier to the effective marketing of the Green Deal.

3.3 The employee-benefits model is a simple and familiar model to the consumer. In addition, there is an inherent trust in the employer and combined these factors boost consumer confidence and increase up-take of such schemes.

4. Increasing consumer awareness

4.1 An important factor in ensuring consumer engagement is successful marketing of the Green Deal. Without consumer awareness up-take will be low and policy objectives will fail. Consumers will need to be equipped with the right skills and knowledge to take full advantage of the Green Deal.

4.2 Employers eager to offer an employee benefits model to support the Green Deal will be incentivised to market energy efficiency measures to their employees, removing this barrier to uptake.

5. Engaging with consumers from different socio-economic backgrounds

5.1 There has been some concern that the Green Deal will not adequately benefit those suffering fuel poverty.

5.2 Evidence gathered from existing employee benefits schemes, such as Cycle to Work and Employer Supported Childcare, shows that this model benefits those on lower and moderate incomes. In 2010 the Social Market Foundation published a report including findings that 83% of users of the Childcare Vouchers scheme were basic rate tax-payers, with the majority coming from manual, unskilled employment.

5.3 Using our model, it is possible to cap the tax efficiency saving at basic rate level to ensure equality of savings available and that those on lower incomes are able to benefit in equal measure to higher-rate tax payers.

Page 5351 of 298 6. Promoting sustainable behavioural change

6.1 Long-term behavioural change is a critical factor in this policy area. Consumer engagement with the central tenet of the Green Deal – a prioritisation of energy efficiency – requires substantial changes in day-to-day behaviour amongst the majority of the UK’s population. This applies not only to behavioural change towards increased engagement with energy markets, policy and measures to implement energy efficiency, but also, crucially, behavioural change towards how energy is used in the home.

6.2 The potential of employers to effect behavioural change amongst their employees is significant. A failure to harness this potential is a missed opportunity to promote energy efficiency and meet ambitions CO2 emissions reduction targets.

6.3 The employer benefits model allows for the optimisation of the employer: employee relationship as the best way to change behaviour. This is a proven approach, as evidenced in paragraph 6.4. Moreover, it is clear that the tax-efficient element of the model is vital.

6.4 A behavioural impact analysis carried out on the Cycle to Work Scheme in February 2011 included the following key findings:

6.4.1 The financial benefits provided by the scheme through tax efficiency are central to its success in delivering behavioural change, with 73% of respondents declaring that the savings they were offered through the scheme were the most important factor in their decision to take part.

6.4.2 89% of employers believe that the Cycle to Work scheme is an important means of improving employee engagement.

6.4.3 70% of respondents had reduced the number of miles they drive per week as a result of using the cycle to work scheme.

6.4.4 The majority of respondents (71%) said they would travel to work by car if they did not cycle.

6.4.5 64% of users reduced the distance they drive by up to 50 miles per week.

7. Consumer engagement and market growth

7.2 We can predict market growth based on take-up of existing similar schemes. Take-up of Employer Supported Childcare currently stands at 500,000 individuals and 40,000 businesses; for Cycle to Work, 250,000 individuals, 15,000 employers and 2,220 bicycle retailers.

7.3 To show the rate of growth, we can look at figures taken from HMRC estimates based on industry data. These figures show that during the first quarter for which the tax exemption was introduced for Childcare Voucher schemes (April-June 2005) the total sum of the financial values of vouchers issued reached £35 million. By 2011, the same quarter measured £285 million. To give a broader picture, the total sum of the financial values of vouchers issued for the year, by the end of 2005, was £347 million. By 2008, the total figure reaches £722 million.

7.4 The Cycle to Work Scheme also shows how this model is highly supportive of SME access.

Page 5452 of 298 About the Grass Roots Group

The Grass Roots Group are a private company that specialises in the design and implementation of employee engagement, motivation and incentive schemes for some of the largest and most successful firms in the UK, including Sainsbury’s, Nationwide, Sky and British Gas.

We have considerable expertise in delivering reward and incentive schemes to influence and change behaviours and progress government objectives.

Employee benefit schemes have a proven track record of driving government agendas with cost –effective results. We have a proven track record in facilitating such schemes, as well as experience and relationships in the relevant sectors.

We also have experience in the energy sector, working with the UK’s largest energy companies to meet obligations under CERT, and with British Gas to develop a scheme to engage their employees to change their energy usage behaviour.

We are convinced that there is substantial demand from employers for a means of helping staff contribute to the Green Deal agenda, and with ambitious targets in place to reduce the UK’s carbon emissions we feel that a scheme such as this could have a very significant impact on the effort to retrofit the UK’s housing stock and improve energy efficiency.

March 2012

Page 5355 of 298 Written evidence submitted by ACS (CE 08)

1. ACS (the Association of Convenience Stores) welcomes the opportunity to submit evidence to this inquiry. ACS represents 33,500 local shops across the UK, many of whom are small independent shops run by individuals or families.

2. The nature of convenience retail, with long operating hours, intrinsic use of refrigeration and other equipment, means that energy costs are a significant burden. The costs of energy are a critical factor in the viability of a convenience store businesses and it is therefore crucial that the energy market operates competitively and that unfair practices are regulated against.

3. ACS has been working with Ofgem as part of their recent work on their Retail Market Review: Non-domestic Proposals. As part of their review into energy markets, Ofgem recognised that many business customers were also suffering from bad practices by energy suppliers, and that there was a clear need to extend existing protections for domestic customers to small business customers.

4. Many small business customers have no greater resource or understanding of energy markets than domestic customers. ACS is calling on the Committee to extend the remit of their inquiry to include small business customers, and to support ACS’ call for further safeguards for small businesses, in order to remove barriers to switching supplier and prevent the unfair practices around back-billing of business customers. ACS believes these steps are necessary in order to ensure that energy markets operate in a clear and fair way and that protections are in place for all vulnerable customers.

Retail market Review: Non-domestic Products 5. In March 2011, as part of their Retail Market Review, Ofgem published a consultation, extending the Review to business customers, following evidence of a number of unfair practices business customers have experienced from energy suppliers. These included: lack of clear communication from suppliers; objections to supply transfer; automatic rollover of contracts; weak or unenforceable Standards of Conduct, lack of regulation of Third Party Intermediaries; and back billing.

6. Small business customers have historically had very low levels of engagement in the energy market, largely due to a lack of expertise and lack of resources to engage effectively. This was often exacerbated by poor, inaccurate and unclear communication from suppliers.

7. Energy suppliers are currently required to communicate clearly and regularly with domestic customers, in order to help them engage effectively with the energy market. This provision has recently been extended to micro-businesses (those who employ fewer than 10 people), however many small businesses are still struggling to have a clear and constructive relationship with their energy supplier.

8. ACS believes small business customers should also benefit from this and other protections which exist for domestic customers. Ofgem has made progress in this area, with plans to extend the requirement for suppliers to communicate regularly and clearly with small business customers, introduce regulation for Third Party Intermediaries, and improve supplier’s Standards of Conduct.1 However further work is needed if small

1 Further information on this is available in Ofgem’s Retail Market Review: Non-domestic Proposals consultation, available here: http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/RMR_non-domestic%20proposals_consultation.pdf

Page 5654 of 298 businesses are to be able to engage effectively and energy markets are to remain competitive.

Barriers to switching supplier 9. In particular, one key area where significant problems remain is when small businesses try to switch supplier. Ofgem have recognised that businesses are still experiencing difficulties in this area and have expressed concerns that less switching could reduce competitive pressure on the market.

10. Energy suppliers are permitted to object to a customer switching supplier in certain circumstances, including if the request is made: too far in advance of the end of their contract; too late; or if the customer is in arrears. However, the use of objections procedures has been widespread, with some suppliers objecting to more than 50% of transfers.2

11. Of these objections, Ofgem found that 82% were objected to repeatedly3. Investigations showed the large number of objections and repeat applications was largely the result of ineffective and incomplete communication from suppliers.

12. For example, a customer switching supplier may be told that the request was blocked as they are in arrears. However, there may also be other factors preventing the switch, such as the request having been made too soon or not all the metre points having been included in the transfer request. If a customer is not informed of the other reasons the request was blocked, they may repeatedly try and transfer supplier, with new reasons being given each time to explain why they were prevented.

13. ACS believes that energy suppliers have a responsibility to provide customers with clear and accurate information which contains all the relevant facts. As such, we believe regulations should be introduced to make this mandatory, in order simplify the process of switching suppliers and improve the service that energy customers receive.

Back billing

14. Another related issue is that of back billing. If a mistake has been made in the amount a domestic customer has been charged, whether or not it was the suppliers’ fault, the supplier is limited to back billing the customer for a maximum period of 1 year. Any outstanding amounts over this period must be written off by the supplier.

15. The same protection does not apply to business customers. Business customers can currently be charged for errors made up to 6 years previously, which has resulted in some small businesses receiving unexpected bills of tens of thousands of pounds, which are required to be paid straight away. Not all businesses would have the available cash flow to pay this amount on top of their usual business expenditure, meaning that this policy by energy suppliers could cause even successful and solvent businesses to fail. ACS believes that back billing for business customers should only be permissible for one year, in line with that of domestic customers.

16. ACS is disappointed that Ofgem’s Retail Market Review: Non-domestic Proposals consultation did not attempt to address this important issue which is having a serious impact on businesses across the country. While we understand that energy suppliers are working on creating industry agreed standards to address this, there needs to be more active involvement from the regulator to ensure this is robust, adhered to and, if

2 Ofgem Retail Market Review: Non-domestic proposals, pg 19, para 3.4 3 Ofgem Retail Market Review: Non-domestic proposals, pg 21, para 3.10

Page 5557 of 298 necessary, enforced. As customers who are in arrears are prevented from switching supplier, this also has a knock-on effect on engagement with the energy market.

17. Without clear communication and fair practices from suppliers, energy customers will be less inclined to engage in the market, or to be actively involved in new policies and programmes which could bring improvements. Active engagement from both domestic and business customers is vital if the UK energy market is to operate successfully. We hope that this inquiry will recognise the needs of businesses as well as domestic customers, and will help identify some of the key areas where further improvements are needed.

March 2012

Page 5658 of 298 Written evidence submitted by the Energy Saving Trust (CE 09)

EVIDENCE PROVIDED BY THE ENERGY SAVING TRUST

Introduction

1. The Energy Saving Trust (EST) undertakes market research to enable insight into UK consumer attitudes and behaviours towards climate change and energy efficiency in the home. As part of this research EST runs an on-going consumer Attitudes Tracker Survey which serves to track consumer attitudes overtime in response to changes in the social, political and economic climate. In addition, EST undertakes targeted research to better understand consumer reactions to a particular topic, such as proposed policy changes or the likely take up of specific measures.

2. EST has undertaken a large volume of research over the past 15 years both independently and on behalf of government. Much of this research has been published externally either for public use or to influence policy development. Some of this research has been undertaken to inform EST internal processes and programme development. For the purposes of this review, only findings from the later body of work have been included in this assessment1.

Energy Literacy

3. The results of EST most recent Attitudes Tracker Survey 2011 suggest that 71% of consumers are more interested than ever in how to save energy in the home2. The reason for this spike in interest was explained to be the result of ‘tougher economic times’. It appears that many consumers are already looking to mitigate the impact of the tough economic climate and rising fuel costs as 52% of consumers stated they are using less energy than a year ago to save money.

4. These results suggest that consumers are more aware of their energy usage than one might expect. They also suggest that consumers are currently very interested in the need to save energy and possibly more responsive than usual to novel ideas or advice on ways to save energy in the home.

5. Survey results on energy bill literacy serve to corroborate the above findings as only 22% of consumers stated that they don’t look at their energy bills in any detail3. Therefore energy bills appear to be used by the majority of households for keeping track of their energy consumption. These results are encouraging but they do not tell the full story as deeper probing suggest that consumers they do not pay as much attention to their energy bill as initial results seem to suggest. 82% of consumers admitted that they do not know which tariff they are on or how much they pay per unit4. This lack of detailed awareness of personal energy bill details may be partially attributed to the bills complexity as 33% consumers stated that they find their bills confusing5.

1 EST understands that ‘only original work, not previously published or circulated elsewhere’ will be considered in this review. 2 EST Attitude Tracker Survey 2011 3 EST Attitude Survey 2007 4 EST Attitude Survey 2007 5 EST Attitude Tracker Survey 2011

Page 5957 of 298

Switching Energy Suppliers

6. The result for EST Attitude Survey 2007 indicates that only 17% of consumers changed their energy supplier recently. This would seem to make sense as consumer awareness of their tariffs is so low. Of the consumers who admitted to changing their tariff in the past 12 months, 78% stated that the primary reason for doing so was to achieve a cheaper tariff. 10% of customers did so because of customer service and only 6% for the purposes of changing to a greener fuel source. Trust

7. EST research indicates that consumer trust in energy suppliers providing advice on how to reduce the amount of energy used in the home is very low. Results from EST’s recent Attitude Tracker indicate that only 35% of consumers trust energy suppliers with home energy advice provision6. A further 55% of consumers state that they would only partly trust energy suppliers due the belief that they are likely to have mixed motives7. In addition ESTs qualitative research findings suggest that most people do not currently associate their energy supplier with being a source of advice on how to save energy.

8. EST research suggests that consumer trust in energy suppliers can be improved through impartial endorsement through independent expert body like the Energy Saving Trust. 64% of consumers stated that they are more likely to believe advice from a supplier if it is endorsed by EST. Only 7% stated that they disagreed with value in independent impartial endorsement of energy supplier advice.

Policy Awareness

9. It is EST’s experience that awareness of policy interventions in the area of household energy efficiency is generally quite low. Recent building regulations research undertaken by EST supports this as 39% of homeowners stated that they knew little and 29% nothing at all about the Part L Building Regulations in England and Wales8.

11. EST undertook qualitative research in 2011 to explore likely take up of solid wall through the Green Deal9. The results indicated that there was virtually no prior awareness of the Green Deal before being explained the concept. When prompted, most participants in the research struggled to understand the terms. As such, the research results suggested that likely take up of the Green Deal will be low, key negatives being the length of the repayment period, financial baggage and concern over length of the guarantee. A strong positive message to

6 EST Attitude Tracker Survey 2011 7 EST Pulse Groups 2009 8 EST Exploratory Research into Building Regulations 9 EST Solid Wall Perceptions Research 2011

Page 6058 of 298 come through the research in favour of the Green Deal was that the policy will make energy efficiency affordable to all. 12. With regards to Smart Metering policy, EST research indicates that only 30% of consumers have heard of a ‘Smart Meter’10.

11.

March 2012

10 EST Behaviour and Attitude Segmentation Research 2011

11 EST Attitude Tracker 2010

Page 6159 of 298 Written evidence submitted by OFT (CE 10)

Introduction

1.1 The OFT is pleased to submit evidence to the Energy and Climate Change Select Committee inquiry into consumer engagement in energy markets.

1.2 The OFT is the UK’s main competition and consumer authority with a cross-cutting role looking across markets. Ofgem, the energy regulator, has lead responsibility for overseeing energy markets, including enforcing consumer and competition law in that sector. For this reason the OFT’s submission does not focus primarily on energy. Instead, we would like to highlight to the committee some of the wider work that the OFT has carried out on consumer engagement in other markets. We believe that this experience may be helpful in considering consumer engagement in the context of energy markets.

1.3 The submission is structured as follows:

• The first section makes some high level comments on energy and energy efficiency markets.

• The second section outlines the OFT’s framework for thinking about consumer engagement in markets, including when Government or regulators might need to intervene.

• We then give some recent examples of OFT interventions which have aimed to increase consumer engagement in markets.

Energy supply and energy efficiency markets

1.4 As noted above, Ofgem has primary responsibility for energy markets. However, the OFT has responsibility for some aspects of energy efficiency markets, and has taken recent consumer enforcement action in these markets. For example, the OFT has taken enforcement action in the past against mis-selling of solar panels.1

http://www.oft.gov.uk/news-and-updates/press/2007/148-07 and http://www.oft.gov.uk/news-and-updates/press/2009/74-09

Page 6260 of 298 1.5 Energy supply markets and energy efficiency markets arguably pose quite different challenges in terms of consumer engagement. The appropriate role for Government is thus likely to be different in each case.

1.6 Core energy markets are selling a homogeneous product which is a basic commodity for most households. The challenge is to ensure that consumers are sufficiently aware of alternative suppliers, able to compare different options, and then able to switch supplier quickly and easily. Arguably this is similar to the case of Personal Current Accounts (PCAs), described below, where the OFT has made a number of interventions aimed at making customers choice work more effectively. Given the repeated nature of energy purchases (as with PCAs), it might be expected that customers can learn over time and adapt their behaviour, provided they have information on the different options available in a credible and accessible form, and that the costs of switching are minimised as far as possible.

1.7 Energy efficiency measures are, by contrast, heterogeneous, typically not essential, and are often one-off purchases. This might limit the degree of learning behaviour. It is also often very difficult for the consumer to assess the value and quality of the product. On the other hand, typical purchases are relatively large (at least for measures such as insulation or energy efficiency boilers), so we might expect consumers to shop around actively before deciding to buy.

1.8 The OFT receives a relatively large volume of consumer complaints through Consumer Direct in relation to energy efficiency markets. For example, in 2011, over five thousand complaints about the installation, servicing and maintenance of boilers were received by Consumer Direct, while, for the same year, nearly three thousand were received regarding insulation products and services (an increase of 43% on the previous year). In the case of insulation products some of the highest categories of complaints were concerned with mis- selling, in particular misleading advice regarding the product or services, and mis-descriptions of the products.

1.9 Given these market characteristics, the OFT considers that it is important that Government interventions such as the proposed Green Deal, are backed by appropriate consumer protections.

Page 6163 of 298 Framework for analysing consumer engagement in markets 2

1.10 Active consumer engagement plays a vital role in driving strong competition and making markets work effectively. In looking at consumer engagement in the energy sector (as in other markets) it is important to start from this wider market context.

1.11 Markets work well when there are efficient interactions on both the demand (consumer) side and the supply (firm) side. On the demand side, confident consumers activate competition by making well- informed and well-reasoned decisions which reward those firms which best satisfy their needs. On the supply side, vigorous competition provides firms with incentives to deliver what consumers want as efficiently and innovatively as possible. When both sides function well, a virtuous circle is created between consumers and competition, as illustrated in Figure 1.

Figure 1: Virtuous circle between consumers and competition

1.12 When analysing whether consumers are fully engaged and driving competition in this way, it is helpful to break down a consumer’s typical purchasing decision into three stages:

2 For a more detailed account see http://www.oft.gov.uk/shared_oft/economic_research/oft1224.pdf

Page 6264 of 298 • First, the consumer needs to be able to access information about the different options available in the market.

• Second, the consumer needs to be able to assess that information, comparing the different options and reaching a decision on the preferred product.

• Third, the consumer needs to be able to act on his or her choice, for example by switching from an existing provider to a new provider of a particular product.

1.13 There can be a range of reasons why consumer engagement fails at each of these steps, relating either to consumer behaviour or to wider barriers in the market. For example:

• Consumers might find it difficult to access information because it is costly to search for different products, or because firms are not transparent in providing sufficient information about their products and prices.

• Consumers might find it difficult to assess information that they have collected because of behavioural biases or limitations on their ability to compare options or evaluate complex decisions. They may also be put in a position where they are forced to make a decision quickly – for example through doorstep selling or pressure selling techniques.

• Consumers might find it difficult to act because of costs of switching, or simply because of inertia – particularly where the expected benefits of switching are relatively small in absolute terms.

• Finally certain groups of consumers can sometimes find it more difficult to engage in markets. For example, there might be specific issues in relation to vulnerable consumers, or to consumers living in rural communities.

1.14 Consumer engagement can also fail where there are breaches of consumer protection laws. The harm in this case can be both direct – for example where consumers are misled about the true nature or quality of a product – and indirect where mis-selling leads to a general reduction in consumers’ trust and hence willingness to engage actively in markets.

Page 6365 of 298 1.15 The fact that there are barriers at one or more of the stages doesn’t necessarily mean that Government or the regulator should intervene:3

• In any market some consumers will be more active than others, and it is not necessary for all consumers to be active and engaged in order for a market to work well.

• In many markets consumers can learn over time, for example becoming better at comparing different options and learning from past mistakes. This is likely to be the case particularly where consumers are making repeated purchases over time.

• Sometimes markets develop ways of increasing consumer engagement themselves either through self-regulation or by facilitating consumer choice. For example, websites like ‘Top Table’ use consumer feedback as a means of providing better quality information in an accessible form.

1.16 Where the market can reasonably be expected to solve itself, Government and regulators should be wary of intervening because of the risks of unintended consequences. Nevertheless, there may be some cases where targeted action to address specific concerns with customer engagement is appropriate. Broadly we can distinguish between:

• Measures which empower consumers to act for themselves in markets – for example by providing information in a more digestible form or by lowering switching costs; and

• Measures to protect consumers directly, for example through ex ante regulation or ex post enforcement of consumer law.

1.17 The appropriate balance between these approaches will depend, among other things, on how likely it is that consumers can engage effectively in a particular market. For example, where consumers are making repeated purchases and can be expected to learn over time, measures to promote consumer engagement are more likely to be

3 For a framework for thinking about when Government might intervene, see ‘An economic perspective on the interactions of competition and consumer policy’, http://www.oft.gov.uk/shared_oft/economic_research/oft991.pdf

Page 6664 of 298 effective. In contrast, where consumers are making one-off high value purchases, some form of consumer protection may be more important.

Practical examples of measures to increase consumer engagement in markets

1.18 The following paragraphs highlight a range of different ways in which the OFT has tried to encourage greater consumer engagement in markets. Some of these examples may suggest lessons that could be applied to energy markets.

Retail banking – measures to improve transparency and ease of switching

1.19 The OFT has had concerns about the strength of competition in retail banking over a number of years. A particular concern is the apparently low level of customer engagement, for example as suggested by very low levels of switching of Personal Current Accounts (PCAs).

1.20 In its most recent review of retail banking, the OFT’s primary objective was to make the PCA market work better for consumers by:

• Making costs of PCAs more transparent, so that it is easier to compare different PCA products;

• Raising consumers’ confidence in the switching process so they consumers are prepared to switch to better deals.

1.21 In order to achieve this, in October 2009 the OFT agreed a voluntary programme with the banks to implement a number of initiatives looking to improve transparency and switching.

1.22 The transparency initiatives ensure consumers have available the right information, in an easily digestible format, to help them to understand the true cost of running their account and hence manage it more effectively. Specifically, the banks agreed to:

Page 6765 of 298 • Make charges more prominent on monthly statements, so that customers are more aware of the charges that they pay.

• Provide average credit and debit balances, which will help customers to estimate the potential benefits of switching PCA provider.

• Produce illustrative scenarios showing unarranged overdraft charges, giving customers an idea of the costs for different patterns of use.

1.23 The steps to improve the switching process included:

• Initiatives to improve consumer awareness of the switching process:

o An industry guide to switching (commitment following the European Banking Industry Committee's report), Direct Debit help centre and consumer website with switching tools.

• Initiatives to reduce actual problems in the switching process:

o Industry commitments to reduce the number of misplaced Direct Debits and disseminate best practice.

o Updated industry guidance recommending that consumers don’t incur charges when problems occur not of their own volition.

Heating oil – action against price comparison websites

1.24 Price comparison websites play an increasingly important and valuable role in allowing consumers to gather information on different product offers. It is vital that consumers can trust the information they find on price comparison sites.

1.25 The OFT recently carried out an investigation into the transparency of heating oil distributors’ websites as part of its market study into

Page 6668 of 298 off-grid energy.4 The OFT found that some websites offering to find consumers the best price for heating oil were not clear about whether they were price comparison sites or sites for ordering heating oil directly from a single supplier.

1.26 As a result the OFT secured undertakings under the Consumer Protection from Unfair Trading Regulations (CPRs) from WCF Fuels Limited and Boiler Juice Limited to prevent them from engaging in business practices that could be misleading.

1.27 The OFT investigation found that:

• WCF Fuels Limited, which operates the website fuelfighter.co.uk, claimed to make price comparisons but only quoted prices for its own products and services. It also used false customer testimonials on the site.

• boilerjuice.co.uk, operated by Boiler Juice Limited, whilst a price comparison website providing price quotations from GB Oils Limited well as price quotations from other non-related heating oil distributors, was not transparent about its links to parent company DCC plc, which owns GB Oils Limited, the largest heating oil distributor in the UK.

1.28 In addition, as a result of the same investigation, Johnston Oils Ltd, owner of the website cheapheatingoil.co.uk, made changes to its website after the OFT contacted it.

1.29 In summary, these cases demonstrate the important role that enforcement of consumer law can play in ensuring that consumers are not misled by price comparison websites. In turn we believe that this can play an important role in boosting consumer engagement in markets.

Page 6967 of 298 Choice-tools in public services

1.30 The OFT published a report in 2011 on how to improve consumers’ engagement in public services through the use of choice-tools.5 This noted that consumer choice in public services will only bring benefits if that choice is informed and effective. Choice tools in this context include comparison websites, league tables and customer feedback on quality of service.

1.31 Key findings of the report that may be relevant in the context of energy markets include that:

• Consumer feedback can add substantial value to a choice-tool.

• Choice-tool providers need to understand the consumer in order to provide the right information in the right format. Competition between choice-tools can help this happen.

• Enforcement against misleading practices can be an important way of building consumer confidence (e.g. see heating oil cases above).

• Making performance and complaint data public can facilitate entry, innovation and diversity in choice-tools.

• There may be benefits from self-regulation or accreditation by choice tools and service providers to ensure high standards are met across the industry.

Consumer education as a means of increasing engagement

1.32 In addition to taking enforcement action in specific markets, the OFT also aims to increase consumer engagement in markets generally through targeted consumer education.

5 OFT (2011), ‘Empowering consumers of public services through choice tools’, http://www.oft.gov.uk/shared_oft/reports/consumer_protection/oft1321.pdf

Page 7068 of 298 knowledge and confidence. The programme consists of free online educational toolkits for further education teachers, Scottish secondary schools and local authority Trading Standards Services (TSS) and teacher training. The toolkits use everyday consumer situations, such as choosing a mobile phone or writing a letter of complaint, as contexts for learning numeracy and literacy. This is taught via games, role play, audio case studies.

1.34 The target audience of Skilled To Go, is classed as vulnerable due to a skills deficit and is often concentrated in lower income groups (C2DE): both factors inhibit their ability to function as effective consumers. The programme has already delivered demonstrable benefit for consumers. Independent research carried out for OFT in 2010 by COI identified that by the end of 2010-11 Skilled To Go had delivered £2.64m benefit to consumers at a rate of £4.79:1, with a forecast to increase to £5.56m at a rate of £13:1 by 2014-15 if continued.

1.35 Specifically in relation to energy, Skilled To Go’s ‘Utilities’ module of educational resources supports learners to:

• Consider their home energy usage and ways to reduce it.

• Understand utility bills, how they’re calculated, and compare tariffs.

• Understand how to switch supplier and identify the opportunities and risks involved in this.

• Complain effectively about an energy or energy supplier problem and know where to get help.

Access to personal information

1.36 A different approach to increasing consumer engagement is to ensure that consumers have as much information as possible about their own purchasing behaviour. This approach is being taken forward through the 'Midata' project which aims to persuade companies that hold data on consumers to release that data back to those consumers in portable electronic format.

Page 71 of 298 1.37 The Midata project is part of the Government’s consumer empowerment strategy,6 which the OFT contributed to developing. The project is being run by the Department for Business, Innovation and Skills and the Cabinet Office, and OFT has a place on the strategy board.

1.38 The project recently commissioned some consumer research which found:

• Many consumers have concerns regarding online security and privacy, but put these to the back of their minds and transact online anyway. Explicit mention of “personal data” can bring these concerns to the fore.

• The most interested were savvy consumers leading busy and complex lives and regularly using the internet to transact. This raises a question about the extent to which the benefits might extend to vulnerable consumers.

Targeted consumer enforcement

1.39 Finally, targeted consumer enforcement can also play an important role in encouraging greater engagement. In addition to addressing consumer detriment directly, enforcement action can help to build trust in markets. Consumers are more likely to engage actively in markets where they know that the OFT, other regulators and local authority TSS, will take enforcement action in the event that a firm breaches consumer law.

1.40 Some examples of recent enforcement action include:

• Investigations into unfair practices in the mobility aids sector - The OFT received information which prompted it to investigate the practices of two national companies operating in the mobility aids sector. Acorn Mobility Services Limited has worked closely

6 http://www.bis.gov.uk/policies/consumer-issues/consumer-empowerment

Page 7270 of 298 with the OFT to improve both its terms and conditions, in line with unfair contract terms legislation, and its internal processes to improve its standards of customer care. We anticipate that this intervention is likely to represent significant improvements for consumers both in relation to purchases and service agreements. The second company has a national reach and operates in the doorstep sales channel. Its practices that raised concerns related to potentially misleading techniques used by its sales representatives, which included some of the sales practices highlighted by this study. We continue to investigate this case under consumer protection legislation, including the CPRs.7

• Misleading sales and marketing practices by holiday club companies - The OFT was concerned that holders of timeshare products attended presentations on the promise of being able to dispose of their timeshares, with their maintenance charges, when in fact they were subjected to lengthy and high pressure sales pitches to be sold expensive holiday club memberships costing large sums, in some cases up to £12,000. The OFT obtained enforcement orders in the High Court against two companies, Personal Travel Group Limited and Geo Demographic Market Research Limited and seven individuals stopping them using sales and marketing practices the OFT considers to be misleading or otherwise unlawful when selling and marketing holiday club memberships and other holiday based products.8

• Concern over a car supermarket's sales practices - The OFT believed Carcraft, which has 11 car supermarkets across England and Wales, was not always properly carrying out the comprehensive pre-sale vehicle inspections it advertised, with customers complaining about vehicles suffering significant problems shortly after purchase, and did not always meet its legal obligations to repair or replace cars when cars sold were not of satisfactory quality. There were further concerns that Carcraft did not make clear to some customers the terms of motor finance,

7 http://www.oft.gov.uk/OFTwork/consumer-enforcement/consumer-enforcement- current/mobility-aids-market/

8 http://www.oft.gov.uk/news-and-updates/press/2011/58-11

Page 7173 of 298 such as the level of repayments or that they were signing more than one finance agreement. The OFT secured undertakings from the company about its future conduct.9

March 2012

9 http://www.oft.gov.uk/news - and -updates/press/2011/121-11

Page 7274 of 298 Written evidence submitted by SSE (CE 11)

SSE is pleased to submit written evidence to the Select Committee’s inquiry into consumer engagement with energy markets.

SSE (formerly Scottish and Southern Energy) is a UK owned and based utility with a core focus on the energy markets in Great Britain. It is the second largest energy supplier, supplying over 9 million customers. It is also the second largest generator of electricity in the UK, and the largest generator of . SSE also operates the electricity distribution networks in South Central England and the North of Scotland, where it also operates the transmission network.

Summary

1. SSE believes that the GB energy supply market is competitive, and that this competition continues to be the most effective means of protecting consumers.

2. As a leading UK energy supplier, SSE takes seriously its responsibilities toward its customers. Its customer service is independently rated as sector leading and it recognises that suppliers must do more to build trust in order to engage customers with their energy consumption.

3. SSE has taken several steps to build consumer trust. In July 2011, it was the first major supplier to permanently end doorstep energy sales. Following this, in autumn 2011 SSE published a package of ten measures intended to improve transparency, simplicity, customer service and ensure fair deals for all customers. Other suppliers have since announced measures to build trust.

4. Ofgem is correct to seek to address obstacles that make it harder for consumers to engage with the market. SSE remains concerned however, that the genuine efforts made by some suppliers to rebuild consumer trust must be fully considered and must not be wholly undermined by the remedies in Ofgem’s Retail Market Review (RMR).

5. It is not possible to force consumers to engage with the market. Nonetheless, suppliers can do more to help consumers understand their energy bills and SSE has taken steps to achieve this.

6. Switching rates in the market are high, with around 18% of customers switching supplier each year, and compare favourably to similar competitive market across the world. SSE does not believe that customer switching rates taken in isolation are a proxy to define a competitive market and consumer engagement. Instead a range of factors must be monitored, such as customer satisfaction indicators and those switching tariffs with their current supplier, in order to ascertain a more coherent measure of market health.

7. SSE believes that Ofgem have identified the right problems in its RMR proposals, in terms of tariff simplification and comparability, but not necessarily the solutions to address them. There is a concern that Ofgem continues to advocate far reaching market reforms without first defining what a successful outcome is. As a result, it is not possible to compare different solutions to the problems.

8. SSE believes that the prevalence of loss-leading online tariffs designed only to attract the most engaged customers at the expense of existing customers is the most significant factor eroding trust in the energy market. The RMR will not adequately address this issue and therefore the proposals should be reconsidered.

1. Building customer trust

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1.1 SSE believes that the GB energy supply market is competitive, and that this competition continues to be the most effective means of protecting consumers.

1.2 Ofgem have noted that “the level of consumer participation in GB energy supply markets is amongst the highest of any retail energy market throughout the world.” One indicator of this competitive market is that average UK prices for electricity and gas are amongst the lowest in Europe; the UK has the fourth cheapest electricity price and the third cheapest gas prices. Another useful, but not exhaustive, indicator is the level of consumer switching, which compares well against other retail markets such as telecommunications, insurance and mortgages.1

1.2 As a leading UK owned and based company, SSE recognises the challenges affecting the GB market and fully supports considered and proportionate responses intended to address them. SSE was one of the first suppliers to acknowledge that energy suppliers have a responsibility toward their customers and at a time of rising prices must transform the way they interact and communicate with them. Without this, attempts to engage consumers in the energy market will become more challenging.

1.3 SSE believes that energy suppliers do considerable amounts of good work. SSE handles over 20 million customer calls each year, intends to spend over £200 million over the next four years on assistance for vulnerable customers and its customer service has been independently recognised as sector leading, most notably

awarded 5 stars.

1.4 SSE recognises that in order to engage consumers, suppliers have to take steps to build consumer trust. It is for this reason that SSE was the first major supplier to:

• End all commission-based doorstep sales, which became an outdated approach to customer service; • Freeze energy prices until October 2012, giving households assurance about their energy prices; • Publish data on all customer complaints, to increase transparency and enable consumers to make an informed choice about SSE’s customer service.

1.5 In autumn 2011 SSE went further and published its Building Trust package. This consisted of ten measures intended to simplify tariff choices, improve transparency and customer service and offer fair deals for all customers. SSE is implementing each of these ten proposals2:

• Introduce an Energy Price Rate to enable customers to more easily compare prices • Simplify tariffs and radically reduce the number of tariffs from 68 to just 4 (see annex 1) • Provide customers with a breakdown of what makes up their bills to help inform customers about their energy costs (see fig. 1) • Publish an online tracker showing the wholesale and retail costs of energy and our margin to inform customers about the changing cost of energy (see fig. 2) • Transform wholesale market liquidity by auctioning 100% of SSE’s available electricity generation output and demand on the ‘day ahead’ wholesale market • Introduce a mis-selling guarantee • Offer every customer an Annual Energy Review to proactively ensure that customers are on the right tariff and payment plan for their needs and understand the household energy efficiency measures that are available

1 See DECC Energy Price Statistics and Ofgem’s Energy Supply Probe 2008, page 6. 2 See www.sse.com/buildingtrust

Page 7674 of 298 • Establish independent customer forums • Never engage in any form of predatory pricing • Ensure that all customers have access to all tariffs.

1.6 Ofgem is correct to seek to address obstacles that make it harder for consumers to engage with the market. However, some other suppliers, like SSE, have since introduced measures to build trust. These genuine attempts to build customer trust are to be welcomed and their benefits should be fully considered before fundamental reforms are introduced onto the market through Ofgem’s Retail Market Review. In essence, future reforms must be made to the market we have, rather than the market we had.

2. Customer engagement

2.1 SSE recognises that consumers are not a homogenous group and that levels of understanding differ. Any attempts to try and force consumers to engage with the energy market, however well intentioned, will have unintended consequences. A preferable approach would be to ensure that consumers continue to have choice and that competition works to protect their interests.

Energy literacy

2.2 In SSE’s experience the majority of customers want only to receive their bills and to check that the costs are within the expected range. They have concerns only in those cases in which their bill is outside the expected range. SSE acknowledges however that suppliers can and should do more to provide customers with clarity and simplicity. This concern was a key driver behind the Building Trust package and influences SSE’s ongoing work to simplify consumer bills and consumer’s engagement with SSE’s tariffs and products.

2.3 Within the Building Trust package SSE has taken steps to begin engaging consumers to improve their energy literacy. All of SSE’s annual statements include an average breakdown of what costs make-up an average energy bill, the numbers are based on externally published information (see fig. 1). SSE also publishes an online energy market ‘tracker’. Updated quarterly, the Tracker provides a retrospective and forward looking indicator of energy costs. It allows customers to see the changing and volatile nature of wholesale costs, so that they can easily see the justification for the reasons why their bills go up and down. The website also features further background information (see fig 2).

Fig. 1 Publishing a breakdown of energy costs on customer bills

Fig. 2

Page 7775 of 298 The online energy market ‘Tracker’

Simplified bills

2.4 SSE strongly believes that greater work must be done by the industry to simplify energy bills. There have been several, often well-intentioned, attempts to do so in recent years yet, consumer confusion has increased due to the proliferation of legal requirements of what must be included on customer bills.

2.5 SSE is developing its proposals for a simplified bill and calls on Government and Ofgem to now take a holistic view of how consumer’s bills can be simplified.

Costs of Government schemes in consumer bills

2.6 To an extent, consumer confusion about what makes up their energy bill is a result of the number of Government environmental and social schemes funded through bills and the rising costs of these schemes. It is regressive to recover the costs for the Government’s policy objectives from energy bills rather than through the means tested tax system, as customers with lower incomes spend disproportionately more of their income on their energy costs than more affluent households.

2.7 Currently some costs, such as Warm Home Discount, CERT and CESP, are funded by suppliers at a flat rate per customer, regardless of their energy consumption. A more equitable approach to recovering these costs would be to base them on the costs of energy used, a ‘per unit’ basis, rather than on a per household basis. In doing so it ensures a more progressive system as those customers using more energy, who tend to be on higher incomes, will pay more toward these schemes.

2.8 It is acknowledged that as a consequence of this change a small percentage of low income, high energy users would be adversely affected. The ECO should therefore be targeted at those customers to redress this concern.

Switching rates

Page 7678 of 298

2.9 As a consequence of the competitive market switching rates are high, at around 18% of consumers. According to Ofgem, consumers have a positive experience of switching and “GB’s annual switching rates are the highest of any sizeable competitive energy market in the world”.3

2.10 With SSE’s decision in July 2011 to end all commission based doorstep energy sales, new approaches have been found to encourage consumers to switch in order to maintain previous rates of switching. SSE is doing so by using direct mail, phone sales and online sales as well as exploring other methods such as encouraging consumers to find the right tariff for their needs through Annual Energy Reviews.

2.11 In SSE’s view whilst switching rates are high, taken in isolation they cannot be used as the sole indicator of an engaged market. Furthermore, it becomes even more inadequate as an indicator if tariff or payment method switches with the same supplier are ignored, which Ofgem estimates accounts for around 10% of consumers.4 By monitoring a range of factors a more coherent measure of market health can be ascertained, these factors could include consumer satisfaction and consumer engagement and market participation.

Engaging consumers with their energy usage

2.12 The Green Deal and smart meter roll-out present significant opportunities to engage consumers with their energy usage. However, currently the vast majority of consumers are unaware of these policies and their potential impact. This is partly because the engagement process has yet to start. However, once these programmes are up and running and the benefits become clear SSE is confident that consumers will begin to engage.

2.13 The smart meter roll out, which will result in visits to all consumers’, is an important opportunity to engage with consumers about energy efficiency and educate them about how to manage their energy usage. Ongoing consumer engagement is crucial to delivering sustained reduction in demand and bills, the in-home-display on smart meters and its ability to deliver targeted messages will be an important tool in maintaining this engagement. As the roll-out of smart meters increases it is vital that tariffs support them, as presently drafted Ofgem’s proposals to simplify tariffs in the RMR could undo the benefits of smart meters.

2.14 SSE accepts that the trust deficit in the energy sector presents a challenge to the roll out of these policies. It is for this reason why attempts by suppliers to rebuild trust are so essential.

3. The Retail Market Review

3.1 Ofgem is correct to seek to address obstacles that make it harder for consumers to engage with the market. It is right to try and standardise the terminology used by suppliers, reduce the range of tariffs on offer and identify a suitable tariff comparison metric.

3.2 However, SSE believes that whilst Ofgem have identified the right problems in the market, they have not produced the right solutions to address them.

3.3 SSE believes that the fundamental changes to tariffs proposed in the RMR represent a high level of regulatory intervention and the unintended consequences could harm

3 Ofgem Energy Supply Probe – Initial Findings Report, 2008, pages 43 – 46. 4 Customer Engagement with the Energy Market – Tracking Survey, Report prepared for Ofgem by Ipsos Mori, January 2011.

Page 7779 of 298 competition - and hence consumer engagement - and cannot be justified by Ofgem’s analysis of the retail market. It is with concern that SSE notes that Ofgem continues to advocate significant changes to the market without first having established what a successful outcome is. Without this it is not possible to successfully compare different solutions to the problem.

SSE’s tariff simplification

3.4 SSE agrees with Ofgem that for consumers to feel more engaged in the market there must be greater simplicity and comparability of tariffs. It is for this reason that in February 2012 SSE radically simplified its tariffs. Under SSE’s new simplified tariffs consumers choose a tariff with clear visibility of selectable options that could provide a saving (see appendix 1).

3.5 Suppliers’ moves to simplify their tariffs should not be undone by the RMR as there remain concerns that Ofgem’s tariff proposals could do significant harm to consumer engagement. SSE believes that there are a prevalence of unintended consequences from Ofgem’s tariff simplification proposals.

3.6 Firstly, setting the standard charge is a complex process with multiple costs, which will change over time, going into how the charge is set. Should the charge be set too low then suppliers will struggle to recover costs for low users therefore making them loss making and less attractive to suppliers. By removing the option of allowing suppliers to control fixed cost recovery across their customer base, Ofgem’s proposals are likely to result in higher unit rates being charged to customers.

3.7 Secondly, the proposals to end automatic contract rollovers for non-standard tariffs could seriously increase public distrust. This is because after 12 months consumers will be moved onto tariffs which they did not actively enter into, affecting their choice and potentially their bills. There is a concern that this proposal will anger and frustrate consumers and act as a disincentive to switching.

3.8 Finally, as part of SSE’s tariff simplification proposals it moved from 68 tariffs to just 4. Consumers want simplicity in their tariff choices, however there will be no limit on the proliferation of non-standard tariffs under the RMR proposals, which may further disengage consumers by complicating the market still further.

3.9 SSE’s tariff simplification proposals seek to ensure that these unintended consequences do not occur. Under the new tariff structures all other suppliers could replicate the following to help to build consumer trust:

• Radically reduce their number of tariffs; • Introduce an Energy Price Rate type comparison on all sales channels, based on a clearly defined methodology, to enable easier cross-supplier comparisons.

As a result of these concerns, SSE does not believe that Ofgem’s RMR proposals to amend tariffs will adequately address concerns with the market and with it consumer engagement. As a consequence of the changes SSE has made to its tariffs, there is a concern that the RMR now seeks to fix a problem which suppliers have demonstrated can be solved.

Online pricing differentials

3.10 In our view the biggest factor that has eroded trust is the prevalence in the market of loss-leading online offers designed to attract the most proactive consumers at the expense of existing customers.

3.11 Highly discounted deals aimed at regular switchers are well publicised but have led to an impression that suppliers are overcharging their stickiest customers. SSE does

Page 8078 of 298 not believe that the best deals should be reserved for those customers who switch regularly. SSE therefore operates a fair pricing policy and maintains cost-reflective pricing differentials. As a result of this, SSE offers all of its customers the opportunity to access all tariffs, regardless of how they choose to engage with SSE.

3.12 As a result of these heavily discounted deals a market is created in which smaller suppliers, who lack the customer base to absorb the costs, as well as larger suppliers committed to fairer pricing, are unable to compete for a large section of the market. With some suppliers offering discounts over £300, this makes it almost impossible for new entrants to become established and as a result increases consumer scepticism about competition in the market (see annex 2).

3.13 If Ofgem is able to identify and implement a remedy that resolves this issue, SSE is convinced that many consumer concerns with the market will be allied. Having said this, SSE remains concerned that Ofgem have to date not taken any action over this issue, despite concerns raised by SSE and others. The RMR proposals, in their current form, will not deliver the best outcome for consumers as they do not directly address heavily discounted online deals. At worst the proposals could exacerbate this concern.

Page 8179 of 298 Annex 1: SSE’s simplified tariffs

SSE has now implemented its new simple tariff offering. SSE has now reduced its product range from 64 to just 4 core products.

Customers just have to answer 5 simple questions to get to the four bespoke products.

Where customer usage is unknown, SSE uses the Energy Price Rate (EPR) as a useful comparison for customers. It shows very clearly what SSE would expect the customer to pay (in £ and pence) over the course of a year if they are a low, medium or high user. In the interest of consumers who are not SSE customers, SSE will continue to urge that switching sites and other suppliers use a common comparison metric.

Annex 2: Online pricing differentials

Page 8082 of 298

The graph below shows the discounts offered by suppliers for their standard credit offering at 5th March 2012. The green represents a direct debit discount and the blue represents the additional discount provided for standard online tariffs. It can be seen that some suppliers have extremely large discounts, one over £300, which is inexplicable and not cost-reflective. In effect some customers are being charged significantly more for their energy than others.

March 2012

Page 8183 of 298 Further written evidence submitted by SSE (CE 11a)

SSE submitted written evidence to this inquiry in March 2012. However, since then it has announced and introduced a number of commitments for its customers which will be of interest to the Committee’s inquiry.

Below is a summary of the twenty commitments which SSE has made to its customers. This additional evidence provides an update on how those commitments announced in October 2011 have been delivered and details the additional commitments announced in April 2012 which SSE is currently delivering for its customers.

As it said in October 2011 when announcing its package of 10 measures to try and build customers trust, SSE concurs with Ofgem that at a time or rising prices, suppliers must do more to help their customers. These commitments are a start however SSE recognises that there is more that it can do to meet the changing needs and expectations of consumers. SSE is now working in collaboration with its customers, through its newly constituted and independently chaired Customer Forums, to further improve its customer service and will be making further announcements shortly.

More information on all the commitments listed below can be found at www.sse.com/BuildingTrust

1. SSE’s Building Trust Commitments

The 10 commitments below were originally announced in October 2011 as part of SSE’s Building Trust initiative. They have all been successfully implemented.

Restoring simplicity

• Introduce an Energy Price Rate; a tool to enable customers to easily compare prices.

• Simplify tariffs; to end the complexity around tariffs by reducing the number available to just 4 and make it easier to find the best deal.

Enhancing transparency

• Provide a breakdown of a customer’s bill; including the profit SSE makes.

• Publish an online ‘tracker’ showing the wholesale and retail costs of energy. (See www.sse.com/pricetracker)

• Transform wholesale market liquidity; by radically injecting liquidity in the “day ahead” market.

Improving customer service

• Establish customer forums; to directly engage with customers to improve SSE’s service.

• Introduce a Sales Guarantee; to ensure that customers have confidence in energy sales.

• Offer every customer an Annual Energy Review; to ensure that they are on the best tariff and payment type and are taking advantage of available energy efficiency measures.

Ensuring fairness for all customers

Page 8482 of 298 • Never engage in any form of predatory pricing; to ensure that no customer group is over-charged.

• All customers to have the opportunity to access all tariffs; to ensure that existing customers are treated as fairly as new customers.

2. Still Building Trust: commitments SSE announced in April 2012

Restoring simplicity

• Simplify energy bills; SSE will trial a prototype simple bill with customers and work to remove many of the compulsory regulatory requirements which get in the way of customers’ need for straightforward and practical information.

• Tackle estimated bills; to help to ensure accurate bills, in 2012 SSE will launch a new service dedicated to reducing the need for estimated bills. This will assist customers during the seven-year transition to smart meters.

Enhancing transparency

• Publish an Energy Market Outlook; SSE will periodically publish statements analysing wholesale market conditions and the potential impact that this and other costs may have on the retail price of electricity and gas.

• Introduce a trading commitment for smaller suppliers; to further enhance wholesale market liquidity SSE has developed a specific trading commitment for small suppliers consisting of terms suitable to their needs and has written to every small supplier to inform them.

Improving customer service

• Introduce an ‘open book’ approach to customer service data; to allow customers to be able to better judge SSE’s performance, it will introduce an externally-assured online display enabling customers to monitor performance.

• Extend the Sales Guarantee to all energy products; to give sales assurances to all of our home services customers SSE will extend the Sales Guarantee to cover all domestic gas, electrical and renewable maintenance and installation services.

• Offer all customers an Annual Energy Review and prioritise vulnerable customers SSE has been encouraged by customers’ reaction to the Annual Energy Review pilots and will now commit to rolling out the service to every customer, beginning with those considered to be vulnerable. To deliver this SSE has recruited around 200 new employees.

• Introduce freephone customer service numbers; to encourage customers to engage with SSE it will make all customer service phone numbers 0800 numbers.

Ensuring fairness for all customers

• Always ensure that prepayment meter customers can get onto the best tariff; current prepayment meters have inflexible technology and suppliers do not provide their cheapest tariff through these meters. SSE will be the first supplier to enable these customers to benefit from its cheapest tariff.

• Give customers an assurance with a price freeze guarantee; SSE has committed to not increasing its electricity and gas prices until at least October 2012.

August 2012

Page 8385 of 298 FURTHER WRITTEN EVIDENCE SUBMITTED BY SSE (CE 11 B)

GOVERNMENT ENERGY EFFICIENCY SCHEMES

This note has been prepared for the Select Committee Members as part of their inquiry into consumer engagement.

In its tariffs announcement in August 2012 SSE noted that one of the principal reasons why its tariffs will have to increase is due to the rising costs it is experiencing from delivering Government-mandated energy efficiency schemes. This note serves as background and explores the costs of delivering current energy efficiency schemes and the implications for consumers and for competition.

A typical dual fuel customer is currently paying over £120 to fund government- mandated schemes. For the year October 2012-13, this figure is forecast to rise to over £135.

For typical dual fuel customers, CERT/ECO costs will be around £85 for the year October 2012-13, having been around £50 between April 2011-12. SSE has seen energy efficiency costs under CERT rise by over £100m in the last year.

Because CERT, ECO, CESP and WHD are borne exclusively by those suppliers with a customer base over 250,000, dual fuel customers of those suppliers are penalised by over £100 from October 2012- 13, in comparison to customers of smaller suppliers.

ENERGY EFFICIENCY SCHEMES ARE AN EFFECTIVE WAY TO REDUCE DEMAND

Improvements in the energy efficiency of household technology and improved home insulation levels are important factors behind the reduction in energy demand SSE has consistently observed.

The effect of reducing consumers’ demand should not be underestimated in the energy policy debates. Using current tariff prices, typical bills would be around £417 higher if customers continued to use the same amount of energy that they did in 2005. SSE is committed to helping vulnerable customers manage their energy costs and is supportive of effective government-sponsored schemes as a means of doing this. SSE successfully delivered the challenging Energy Efficiency Commitment (EEC) between 2005 and 2008.

WHY THE COSTS OF DELIVERING CERT ARE INCREASING

Carbon Emissions Reduction Scheme (CERT)

Based on Ofgem’s report from earlier this month, SSE is ahead of the supplier average for overall delivery of CERT measures and is confident of achieving its overall carbon target.

Midway through the CERT scheme, in 2010, the Government amended the scheme to create a minimum percentage of insulation installations (“The Insulation Obligation – IO”). SSE is ahead of the average published company position for IO measures.

At the same time, the Government also amended the CERT order to introduce a Super Priority Group (SPG) whereby suppliers had to find a particular group of people who receive certain benefits and are at risk of fuel poverty. SSE has equalled the industry average for measures delivered to SPG customers, although all suppliers have found the scheme challenging due to the rigorous requirements to demonstrate eligibility.

Page 8684 of 298 Overall, the Government predicted the scheme, which is paid for by customers, to be delivered at a cost of 16/tCO². However, key unanticipated external factors listed below have driven up costs and impacted the efficiency of delivery with insulation costs now running at £25/tCO². These include:

Factor Comments

Installer The limited capacity of the certified installer industry to actually deliver measures has capacity affected all obligated parties. This classic supply and demand problem has seen insulation costs double.

Poor uptake

Reasonable Given the unexpected cost increase and that customers pay for the schemes through cost bills, SSE is uncomfortable with a “delivery at all costs” approach.

Finding Without access to benefits data, it is high challenging to locate vulnerable customers. SPG SSE has devoted considerable resources to finding and documenting SPG measures. customers Collaboration with Government (e.g. DWP data trial) has still not delivered the increase in uptake that had been expected.

SPG Ofgem’s current methodology to measure SPG compliance does not fully capture actual verification compliance and is extrmemly burdensome for customers and suppliers. Many SPG customers are reluctant to provide benefits documentation for reasons related to privacy, inconvenience, and lack of incentive. As such, it has been hard to demonstrate compliance with SPG requirements, despite substantial evidence from SSE’s customers and the DWP data trial where Ofgem’s criteria for judging compliance was actually screening out a large proportion of SPG customers

Community Energy Savings programme (CESP)

Ofgem reports suggest SSE’s delivery of CESP measures slightly lags the industry average although across the whole scheme there has been disappointing delivery of CESP across the industry. The primary reasons are a lack of third party funding from local authorities, complex scoring, the limited number of actual viable schemes and the fact that Ofgem guidance has been very slow: for example, the methodology for calculating carbon savings from Solid Wall Insulation measures under CESP was not settled until January 2012. The scheme was launched in 2009. Because of failures in the scoring mechanism, which was designed to award “bonus points” for delivering multiple measures in the same house, very few bonuses have been received, meaning that actual carbon savings will exceed those envisaged, with the consequence that costs to consumers have increased. FUTURE ENERGY EFFICIENCY SCHEMES

To ensure that carbon savings are achieved at reasonable cost to the consumer, a number of steps are necessary as future schemes are designed, so that the same situations do not arise again. ECO shares many characteristics of existing schemes. For example, the Carbon Savings Communities target closely resembles CESP and the Affordable Warmth definition is based on the SPG. The most important learning should be the introduction of a “cost control” to ensure value for consumers’ money as SSE believes that the scheme will cost significantly more than the estimated £1.3bn per annum that has been predicted.

Page 8785 of 298 It is also important that Ofgem’s SPG verification process is not transferred to ECO to make it less burdensome for customers.

Finally, it is important that Government schemes are shared equitably across all supply companies, and across all gas and electricity customers. There should not be “winners and losers” from these schemes.

August 2012

Page 8886 of 298 Written evidence submitted by Make it Cheaper (CE 12) (Business) Consumer Engagement with Energy Markets

1. Background/Summary

Make It Cheaper has been campaigning for a fairer deal for the UK’s 1.8 million non-domestic energy consumers (micro/small businesses & charities) since the company was founded in 2007. This was the year we organised a round-table in Portcullis House for Mark Prisk MP (then Shadow Enterprise Minister) to grill the Big 6 & Ofgem - primarily - about the unfairness of the rules governing rollover contracts. Ofgem subsequently launched its two year Energy Supply Probe that - arguably - did more harm than good to business customer engagement by setting out new rules surrounding contract notice periods and allowing each energy supplier to ‘interpret’ them in different and unnecessarily complicated ways (see Termination Window Calculator below). Now Ofgem’s current Retail Market Reform seems to have sidestepped the thorny rollover issue - which is still by far the greatest source of grievance among SMEs buying energy - by saying that it will be looked at again only once this consultation is complete (p.16).

Whilst we do not support a ban on rollover contracts (as this would put upward pressure on business energy tariffs), we would like to take this opportunity to recommend simple-to-implement measures that would at least help non- domestic energy consumers avoid the ‘Rollover Trap’ and other key barriers to switching between suppliers.

Q. What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary?

2. The Problem

SMEs typically pay fixed price tariffs for one, two or three years and it is not unusual to see prices going up by 50% as they come up for renewal at the end of their contract (see our tariff table overleaf). However renewal windows - the only period that a business can apply to switch or look to negotiate a better deal - open and close at different times mid-contract, depending on the supplier. Here, for example, are the renewal window date ranges among different suppliers (including the Big 6) for a notional contract coming to an end on 1 July 2012.

If a business fails to act before the end of the renewal window, its contract will automatically 'rollover' on to renewal rates for at least another 12 months. In other words… cheaper prices are only available to those who know about their renewal window, are proactive about shopping around well ahead of their contract end date and then manage to avoid being rolled - by sending a correct termination letter to their supplier (which requires information such as the Meter Point Administration Number).

Page 8987 of 298 Av Current Price Av Rollover Price Av Switching Price

Business Electricity 9.3p/kWh 14.25p /kWh 10.15p/kWh Business Gas 2.5p/kWh 4.5p /kWh 2.9p/kWh

Source: Make It Cheaper, January 2012 In 2010 and again in 2011, Make It Cheaper commissioned independent research that showed half of businesses were unaware that, in order to terminate an energy contract, they needed to do so within a certain time period. Alarmingly 79% of businesses also said they had never received - or couldn’t remember receiving - a renewal letter from their energy supplier. This being the only warning the supplier is obliged to give its customer that their contract is about to be rolled on to higher rates.

3. The Solution

A few simple changes to customer correspondence would make it easier to switch supplier and result in more businesses doing so. This would encourage the suppliers to sharpen their pencils and offer more competitive rates to retain their business customers in the first place. EG:

a. Each bill sent by a supplier should clearly highlight the contract end date and any notice period required to terminate. b. Each renewal letter should be sent from the supplier by Recorded Delivery and show the difference between the current rates charged and the proposed renewal rates in £s and %. It could also explain how and when to serve notice if the customer is to prevent its business from being automatically rolled into a new contract on the proposed renewal rates.

Research conducted among Make It Cheaper customers in 2012 (ie those that have actually managed to switch supplier this year) shows overwhelming support of this:

Page 9088 of 298

We have, of course, expressed these views in meetings with energy suppliers, Ofgem and Consumer Focus - as well as in written responses to their consultations - providing plenty of evidence (see below for recent examples of Make It Cheaper Customer Feedback). In fact so strongly do we feel about this, that we have taken the unusual step of galvanising other Third Party Introducers (TPIs) and, together, encouraged businesses (through our own customer engagement and via the national press) to write directly to Ofgem in support of our proposals. Following last month’s deadline to respond to Ofgem’s RMR consultation, we created an epetition: “Spell Out To Ofgem What Businesses Want From Energy Customer Engagement”.

4. Supplier Objections A further major barrier to business consumers switching energy provider, as detailed in our RMR response, is the disproportionate number of switching attempts that are derailed by outgoing suppliers raising ‘Objections’. In 2011 Make It Cheaper resolved over 13,000 meter objections with some suppliers objecting to as many as 35% of all customers switching away. Most of the objections we investigate are termination procedure related and, when they do occur, we see an average of 3-5 objections per customer. In addition, the information provided to customers explaining the reason for their objection is poor. In most cases the objections are lifted after our investigations, but it leaves the customer facing delays and could ultimately put them off the switching process itself.

a. Make It Cheaper supports Ofgem’s proposal to publish data relating to objections on a regular basis and we suggest that this should be explained in the context of the percentage of leaving customers this represents. b. Another key metric of customer engagement that Ofgem &/or Consumer Focus should publish on a regular basis is accurate switching volumes among SMEs - to identify market fluidity and to track trends. As our own independently-commissioned research shows, SME switching volumes are significantly lower than in the domestic market - eg just 7% compared to 18% annually, this despite 45% of businesses expressing a desire to switch when asked.

5. Smart Meter Interoperability

Finally, we have seen a sharp rise in the number of SME switching attempts that fail because of non-compatibility issues with meters using smart technology. In some cases energy suppliers are applying additional standing charges to support smart meter technology. These charges range from 20 pence to 60 pence per day (£73 to £219 per year). Even if a supplier accepts a new type of meter from a customer wishing to switch, it is often subsequently read in the traditional ‘dumb’ way and so removing any smart technology benefits. Any non-domestic site that has had a new meter installed in the past two years is at risk from the compatibility (or ‘interoperability’) problem. As with all of the above issues, these sites include small businesses, charities and smaller sites of larger businesses or public sector bodies.

Page 8991 of 298

a. There needs to be better coordination with the rollout of smart meters and, crucially, open standards that guarantee any future switching will be hassle-free / cost-free.

b. SMEs also need convincing that smart meters are not the ‘Emperor’s New Clothes’ with advice on how they can lead to actual cost savings – ie evidence that the ‘pros’ extend beyond meter reading efficiencies and debt management for the sole benefit of supplier billing departments.

6. Conclusion

I hope that these suggestions are useful and, where necessary, can be quickly incorporated into the supplier licence conditions. We would be happy to provide more evidence from business energy consumers - both anecdotal and statistical - in support of our arguments. Indeed we would welcome DECC to follow Ofgem and Consumer Focus in visiting Make It Cheaper’s contact centre in Waterloo to better understand the issues faced by business energy consumers. Likewise we would also consider exploring ways in which Make It Cheaper’s customerbase - the largest captive audience of businesses switching supplier in the UK - could be used to reach a consensus of where consumer engagement with the energy market can be improved.

March 2012

Page 9092 of 298 Further written evidence submitted by Make It Cheaper (CE 12a)

Make It Cheaper submitted evidence to the Consumer Engagement with Energy Markets inquiry in March 2012, however given recent developments as outlined below, we would like to provide supplementary information to this ahead of evidence being given by providers on the 4th September.

The Consumer Engagement with Energy Markets inquiry aims to investigate the extent to which consumers are willing to actively participate in markets, for example by switching their provider. This is something which the Department for Energy and Climate Change has also been encouraging; however, whilst domestic customers are actively encouraged to switch their provider to save money, it is very difficult for non-domestic customers to do the same. Make It Cheaper believes that this is caused by a lack of transparency on non-domestic energy bills, and has therefore been working with energy companies to find an amenable solution for both customers and energy companies.

As outlined in Make It Cheaper’s initial submission to this Inquiry, we have been urging energy companies to adopt a few simple measures that will empower business customers without requiring any changes in regulation, providing the opportunity for a quick win for both customers and suppliers. These changes to customer correspondence would make it easier to switch supplier and result in more businesses doing so.1

Ofgem’s Retail Market Review is examining the non-domestic market, but we believe that it is in the best interests of businesses if energy suppliers act swiftly without requiring or waiting for regulation to be introduced. We are delighted to say that ScottishPower is already sending renewal letters by Recorded Delivery to its micro-business customers. Following discussions with Make It Cheaper, another provider, CNG, will be joining them in September, and E.ON has agreed to print contract end dates on bills. We welcome these voluntary commitments, and hope that other energy suppliers will be encouraged to follow suit.

It is vital that non-domestic energy users are given as much information needed to switch energy supplier as domestic customers. If the remaining Big 4 energy companies can be encouraged to follow the lead of these Big 2 energy companies, who have already made important but simple changes, then non-domestic customers could find it far easier to switch energy suppliers, thereby making vital efficiency savings, without the need for any further regulation. Make It Cheaper research indicates that engaged non-domestic energy users pay on average 40% less for their energy than dormant customers.

Make It Cheaper would be happy to provide further briefing to the Committee. Please contact Jonathan Elliott, Managing Director of Make It Cheaper, 111 Westminster Bridge Road, London SE1 7UE: Tel 020 7654 0701 or via email on [email protected].

1 See points 3a & b in Consumer Engagement with Energy Markets, Memorandum submitted by Make it Cheaper (CE 12)

Page 9193 of 298 Written evidence submitted by Scottish Renewables (CE 13)

Introduction:

Scottish Renewables is Scotland’s leading renewables trade body. We represent more than 300 organisations involved in renewable energy in Scotland. Further information on our work and membership can be found on our website: www.scottishrenewables.com.

This renewables sector is playing a crucial role in the efforts to tackle climate change, increase Scotland’s energy security, and to create a new industry. To realise these goals, Scotland also has set an ambitious target to source the equivalent of 100 per cent of our electricity demand and 30 per cent of all energy consumption from renewables by 2020.

For the purpose of this response we have concentrated on the media’s influence on consumer perceptions of the drivers behind rising customer energy bills, specifically in relation to how increasing the capacity of renewable energy sources in the UK’s energy mix are reported in the UK press.

We have focused on those most pertinent questions posed by the consultation as we believe the media has the greatest potential to influence consumer perceptions around the issue of how future energy prices and relying on more renewable energy for our needs will impact on consumer bills.

Questions:

• To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this?

• What impact does the media have on public perceptions of energy bills?

Many forms of electricity generation receive financial support and in the case of renewable energy, the Renewables Obligation has a very minimal impact on consumer bills. There is clear and consistent evidence from a number of organisations including energy companiesi, the independent Committee on Climate Change and Ofgem, the gas and electricity regulator, that the rising wholesale price of gas is the main driver in pushing up consumer energy billsii and that “greater reliance on non-fossil fuels such as nuclear and renewables, could reduce Britain’s dependence on gas imports”iii.

The Department for Energy and Climate Change (DECC) states the Renewables Obligation (RO), the main source of financial support for renewable energy production, currently adds £26 per annum to the average consumer’s energy bills and that this will rise to between £50- £52 by 2020iv. DECC has also said, overall, the government’s green energy policies taken together are projected to save consumers £94 a year (or 7% of bills) by 2020v.

Despite this consensus of opinion amongst experts involved in this policy area it is apparent from recent coverage that this message has failed to reach some sections of the UK media. vivii News publications have relied on unverifiable leaked reportsviii or skewed research by think-tanks and individual consultantsix. These news reports, particularly the headlines, are highly selective in their use of factsxxi and can often be open to accusations of bias.

The BBC’s Panorama programme ‘What's Fuelling Your Energy Bill?xii’ was a recent example of the questionable journalistic standards the renewables industry has become increasingly frustrated with. After this episode was broadcast the programme makers were

Page 9294 of 298 forced to clarify the claims contained in it around what constituted the main drivers behind the rise in consumer energy bills after a number of complaints, including a letter from Scottish Renewablesxiii. Unfortunately, despite these clarifications, there were similar omissions in the recent ITV Tonight programme ‘The Cost of Going Green’ which covered the same issuesxiv.

xv. The poll found 59 per cent of Scots want the government to use more wind farms in our energy mix and 69 per cent want more solar power. This compared with just 13 per cent of Scots who want more oil power stations and 8 per cent who want more coal power stations. It was regrettable that the Sunday Times chose not to run a story on the poll’s findings.

However, we are pleased to note that there has been more recent instances where the media has produced stories that reflect the facts about the impact of renewables on consumer energy bills such as the Scotsman newspaperxvi which highlighted figures from the Scottish Government which stated: “Low carbon energy policies and measures could lead to an average household energy bill of £1,285 by 2020 – whereas carrying on with ‘business as usual’ will lead to bills of £1,379.”xvii

While it remains unclear as to the degree of the media’s influence on public perception of how increasing our reliance on renewable energy will impact on consumer energy bills, there is some evidence that the debate itself has yet to become fully balanced or well informed.

Conclusion:

Scottish Renewables acknowledges that our energy policy is a complicated issue, and that it should be the subject of robust debate, however, we believe that there are some instances where the media have failed to provide readers or viewers with the appropriate information to take an informed view about renewable energy and its impact on consumer energy bills.

March 2012

Page 9593 of 298 References

i EDF Energy (2012): ‘What makes up your energy bill?’ http://www.edfenergy.com/products-services/for- your-home/my-account/what-makes-up-your-energy-bill.shtml

ii Committee on Climate Change (2011): ‘Household energy bill increases caused primarily by rising cost of gas, not environmental policies’ http://www.theccc.org.uk/news/press-releases/1132-household-energy-bill- increases-caused-primarily-by-rising-cost-of-gas-not-environmental-policies

iiiOfgem (2011): ‘Why are energy prices rising?’ Factsheet http://www.ofgem.gov.uk/Media/FactSheets/Documents1/Why%20are%20energy%20prices%20rising_factsh eet_108.pdf

iv Department for Energy and Climate Change (2011): ‘Clegg and Huhne set out government commitment to renewables’ http://www.decc.gov.uk/en/content/cms/news/pn11_85/pn11_85.aspx

v Department for Energy and Climate Change http://www.decc.gov.uk/en/content/cms/infographics/household_bill/household_bill.aspx

vi Daily Mail (2011) ‘Quarter of homes 'face fuel poverty': Green taxes add to burden for struggling families’

viiDaily Telegraph (2012) ‘Green policies are costing Britons the earth’ http://www.telegraph.co.uk/news/politics/9023797/Green-policies-are-costing-Britons-the-earth.html

viii The Guardian (2012): ‘KPMG refuses to publish controversial green energy report’ http://www.guardian.co.uk/environment/2012/feb/07/kpmg-green-energy The Scotsman (2012): ‘KPMG in row over leaked CO2 report’ http://www.scotsman.com/scotland-on-sunday/business- opinion/comment/kpmg_in_row_over_leaked_co2_report_1_2070679

ixSky News (2012): ‘Row Over Cost Of Plans For Green Energy’ http://news.sky.com/home/politics/article/16151485

x The Daily Telegraph (2012): ‘Wind farms paid £25million NOT to produce electricity when it is blustery - and YOU pay’ http://www.telegraph.co.uk/news/politics/9023797/Green-policies-are-costing-Britons-the- earth.html

xi Daily Mail (2012) ‘Plans for green energy drive 'will cost families £400 a year by 2020' http://www.dailymail.co.uk/news/article-2088112/Plans-green-energy-drive-cost-families-400-year- 2020.html#ixzz1mGpDfjxq

xiiPanorama (2011): ‘What's Fuelling Your Energy Bill?’ http://news.bbc.co.uk/panorama/hi/front_page/newsid_9691000/9691095.stm

xiii http://www.scottishrenewables.com/news/scottish-renewables-letter-complaint-bbc-panorama/

xiv ITV (2012): ‘The Cost of Going Green’ http://player.stv.tv/programmes/tonight/2012-02-09-1930/

xvYouGov / Sunday Times Survey Results (2011): p9-10 http://cdn.yougov.com/cumulus_uploads/document/gm4jg0973n/Sunday%20Times%20Results%20111125%2 0VI%20and%20Trackers.pdf

Page 9694 of 298 xvi Scotsman (March 6 2012) ‘Renewables will cut bills by 2020’ http://www.scotsman.com/news/politics/renewables-will-cut-power-bills-by-2020-1-2154824 xvii Scottish Government (5 March 2012) ‘Scottish electricity generation’ http://www.scotland.gov.uk/News/Releases/2012/03/Electricity-05032012

Page 9597 of 298 Written evidence submitted by ICoSS (CE 14)

Summary 1. ICoSS believes that the flexibility and choice that non-domestic customers enjoy in how they interact with the market is a key cornerstone of the successful non- domestic energy markets. The far greater level of customer switching and market competition in the non-domestic market needs to be recognised and the enquiry should concentrate on those areas where customer engagement and market activity is markedly lower.

ICoSS 2. The Industrial and Commercial Shippers and Suppliers (ICoSS) group represents the major independent industrial and commercial (I&C) suppliers in the GB energy market, supplying 75% of the gas needs of the non-domestic sector. A number of our members also supply electricity to their customers. Our members are: • Corona Energy • ENI UK • Gazprom Energy • GDF Suez Energy UK • Shell Gas Direct • Statoil UK • Total Gas & Power Ltd • Wingas UK • First Utility (associate)

Market Composition

a. Micro-businesses that contract directly with their energy supplier using a standardised tariff contract: These types of businesses exhibit behaviour that is comparable to domestic consumers and tend to have a comparatively low level of understanding or engagement with the market, compared to other non-domestic customers. In the main such customers opt for a standard tariff-based product, which is generic to that supplier. b. Micro-business and Small Business that contract via an energy broker: In comparison to the first set of customers, such customers have a high level of understanding of the market, via their broker. In these instances the customer will employ a broker to obtain a competitive rate bespoke contract that is built around the energy needs of the client. c. Large businesses that use a broker, agent or dedicated buyer: This final type of customer can have a comparable level of understanding of the market as their energy supplier and in many cases the customer is the larger entity. Such customers commonly look for innovative contracts such as take or pay, contract for difference or market index linked prices.

4. It should be recognised however that these groups of customers are variable in their composition and are difficult to reliably identify, particularly the first two sets of customers. This is not surprising as it is ultimately up to the customer whether they choose a standard tariff contract or engage a broker in the market. We therefore find that two customers, who are otherwise identical in terms of energy use, will expect very different levels of treatment.

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5. This range of knowledge and engagement in an otherwise homogeneous group of customers is broadly analogous to the varying requirements that are acknowledged to exist in financial markets. The FSA recognises differing types of customer based on their knowledge and experience. Customers can choose to be treated as a “professional client” and so have lower bills as the cost to serve such customers is lower. Alternatively they can choose to be treated as a “retail client”, and so be given additional support by their supplier.

Market characteristics 6. As is expected of a competitive market, the market has responded to these desires and so there is a broad range of product offerings that cater to the varying needs of micro-business and SME customers, focusing on price or customer engagement. A correspondingly varied number of suppliers meet these needs. This has resulted in a far greater range of choice in the non-domestic market compared to the domestic market, with consequentially much higher switching rates

7. It is critical that the benefits brought about by this competitive market are preserved and that the high levels of customer switching are maintained. It is ICoSS’s firm view that a primary cause of these benefits is the flexibility enjoyed by customers in how they choose to engage with the energy supplier.

Scope of Enquiry

8. It is important that the enquiry focuses its attention on the most important areas. Though not specifically stated, the call for evidence seems to be referring to the first set of customers identified above. Any enquiry into customer engagement must recognise that non-domestic customers currently choose how they interact with the market and that customer needs are not necessarily linked to the amount of energy they use. It is also important to note that forced harmonisation of the market will inevitably limit innovation and remove customer choice.

9. By recognising that the current flexibility the non-domestic market brings to customers need to be preserved, the enquiry will be able to concentrate on those market sectors where there is demonstrably less competition and a far lower level of customer engagement.

March 2012

Page 9799 of 298 Written evidence submitted by Which (CE 15)

1. Introduction

1.1 Which? is an independent, not-for-profit consumer organisation with around one million members and is the largest consumer organisation in Europe. Which? is independent of Government and industry, and is funded through the sale of Which? consumer magazines, online services and books. Which?’s mission is to make individuals as powerful as the organisations they have to deal with in their daily lives by empowering them to make informed decisions and by campaigning to make people’s lives fairer, simpler and safer.

1.2 The cost of energy is consumers’ number one financial concern, with nine in ten worried about it1. Yet, despite widespread awareness about switching suppliers, this concern does not translate into consumer action to reduce bills whether through switching or making their homes more energy efficient. This is because energy is a remote concept. People simply want to turn on their lights or watch TV, they do not think about electricity or gas. Also, the link between how much people use and what they pay is not widely understood.

1.3 At the very least, energy price differences should be as clear and as compelling to act on as possible. People should be able to easily compare deals, so that they can switch to a better tariff, as well as understand how to cut their energy bills by using less. However, we must recognise that energy is essentially 'boring'. Price is the only difference for most consumers between suppliers. When considering the huge range of other consumer decisions that people make in their lives (on telecoms, food, finance, health, transport and so on), is it any wonder that energy becomes one of the last things people can be bothered to engage with? Being a consumer should not be a full-time job.

1.4 Concerted, and at times radical, measures are therefore needed from the Government, Ofgem and energy companies. At present, all parties fail to recognise just how disengaged consumers are from energy markets. As a result the necessary policies are not being put in place to ensure that consumers are able to manage their energy use and reduce their bills.

1.5 In particular, significant changes are needed to three key policies. Firstly, Ofgem’s review of tariffs must go much further to ensure that consumers can understand prices and identify cheaper offers. Secondly, we are not convinced that the Green Deal, a complex product that many will perceive as a debt, will drive the kind of consumer engagement with energy efficiency that the Government has ambitions for. Finally, the Government must stop and review the smart meter roll-out, if it is to effectively engage and deliver value for money for consumers.

2. How “energy literate” are consumers in the UK? For example, are most consumers aware of how much their bills vary according to usage? Are terms such as “kWh” understood by most consumers?

1 Which? online survey of 2,094 adults, November 2011.

PagePage 100 98 ofof 298298 2.1 There is a very low understanding of how bills are calculated and how costs relate to energy consumption2. Around two fifths find it difficult to work out how much they owe, a third say they are ‘baffled by their bills’, and only a quarter claimed to know how much they pay for their electricity per kilowatt hour (kWh). The term “kWh” is not a widely understood term.3 2.2 This is exacerbated by the way that tariffs are structured. Our investigation in September 20114, found that only 1 out of 36 participants in a tariff test could calculate what they would pay on a standard deal when we gave them their total annual consumption and directed them to tariff information on energy suppliers’ websites.

3. To what extent are consumers aware of the different components that make up their energy bills and the relative contribution of each aspect? (e.g. wholesale costs, transmission and distribution charges, environmental/social policies and VAT) 3.1 While nearly six in ten5 know that there are additional costs in energy bills, there is low awareness of the different components. When prompted, consumers are least aware of environmental and social policy costs (21%) and the levy to fund renewables investment (23%). People are most aware of network costs (41%). 3.2 There is some interest6 in the make up of energy bills, particularly wholesale profit levels, and consumers accept that energy security, sustainability and long term affordability may have cost implications. Once informed, there is a willingness to pay more in the short term for a longer term benefit. However, consumers question the appropriateness of some initiatives paid through their bills, and whether they tackle the issue of our ailing energy infrastructure or the move towards low-carbon generation. 3.3 For example, the cost of the Solar PV Feed-in-Tariff is divisive. Some believe it is a real incentive to produce their own energy. Others take issue with it from a fairness perspective, as a reward to people who are already able to invest. 3.4 A wider question is why, in a competitive market, consumers should be concerned with anything other than the price and quality of the product. Ultimately, we are interested less in the justifications for the level of prices given by businesses and more with the impact upon consumers. It is clear that consumers do care – and are worried about the increasing cost of energy. Whether they feel able to avoid these costs is highly debatable.

4. To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this? 4.1 Consumers have a vague notion that bills will continue to rise7. However, this is not based on firm knowledge, but from experience and what they see in the media. In the main, consumers are not aware of the reasons for rising prices, although some believe that suppliers are not passing on reductions when wholesale prices drop. 4.2 Consumer concern about energy costs increases when confronted with the prospect of bigger price rises in the future. While 3 in 10 were worried about being able to afford

2 Qualitative research conducted by Opinion Leader Research for Which?, July 2011 3 Which? online survey of 949 UK adults, 2008. 4 Qualitative research conducted by Opinion Leader Research for Which?, July 2011 5 Which? survey of 2,000 UK adults aged 16+ who pay energy bills, October 2011 6 Programme of qualitative (including deliberative) research with 100+ UK consumers in Autumn 2011, conducted by independent research consultancy Quadrangle. A deliberative research methodology differs from conventional qualitative research in that it gives participants more time, information and opportunity for discussion in order than informed opinions and recommendations can be given. This approach encourages participants to think and act as ‘citizens’ (more rational, logical etc) rather than consumers. 7 Quadrangle, Autumn 2011

PagePage 101 99 ofof 298298 their bills at the time of our research, this rose to 7 in 10 when we suggested costs may increase by a third in the near future (from £1,000 to around £1,330)8.

5. What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary? 5.1 Gas and electricity are completely standard products. But tariffs are structured in an unnecessarily complex way leaving most unable to calculate prices or work out the best deal for them. 5.2 This matters because getting a lower price is the overwhelming driver of engagement in this market. When asked why they switch, 79% say to save money, while just 7% say for better service9. 5.3 It is unacceptable that around 40% do not save money when they switch10. However, it is unsurprising that people make poor decisions or choose to opt out altogether, when tariffs are virtually impossible to compare. 5.4 Indeed Ofgem states that six in ten say they have never switched supplier, while around three quarters remain on their supplier’s standard tariff. Furthermore, despite an average discount of over £100 per year for paying by direct debit, 40% of consumers with a credit meter continue to pay on receipt of their bill. 5.5 Ofgem’s Retail Market Review (RMR) focus on reforming tariffs is therefore right. This market should be simple for all and the benefits of competition should not be limited to well-informed and well-resourced engaged consumers. In line with its duty to protect consumers by promoting competition, Ofgem should make it far easier to understand prices and identify cheaper offers. 5.6 It is therefore disappointing that Ofgem has backed away from the wide-scale tariff reform that is needed. Ofgem should follow its own research11 and mandate the simple format for all single-rate tariffs12. This would allow people to only look at unit rates to work out which tariff is cheapest. People would no longer need to know how much energy they use to do this. 5.7 If Ofgem only introduces this simple format for “standard” tariffs, then there will be little incentive to switch to more competitive “non-standard” tariffs, since people will still be faced with complex tiered prices and confusing discounts that make tariffs almost impossible to compare. 5.8 Ofgem’s approach also risks ‘institutionalising’ a two-tier market, where companies continue targeting their most competitive deals to a small number of people with the ability to engage. There are few downsides to suppliers making their standard tariff the worst deal they offer. 5.9 While suppliers may argue about the importance of ‘behavioural incentives’, such as lump sum discounts and tiered ‘no standing charge’ tariffs in persuading people to switch, these ultimately have little value if they obfuscate prices and lead to ineffective switching decisions.

8 Which? face to face survey of 825 GB adults aged 16+ who are responsible for energy bills. 9 Ipsos MORI 2011, Customer Engagement with the Energy market - Tracking Survey, http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/IpsosMori_switching_omnibus_2011.pdf 10 Ofgem Energy Supply Probe 2008: http://www.ofgem.gov.uk/Markets/RetMkts/ensuppro/Documents1/Energy%20Supply%20Probe%20- %20Initial%20Findings%20Report.pdf 11 Ofgem’s research demonstrates that when presented with a selection of tariffs consisting of a uniform fixed standing charge and a variable unit rate, over 80% of consumers were able to identify the best deal. 12 and other time-of-use tariffs are inherently more complex and are likely to require a different approach. Around 85% of households are on single rate tariffs.

Page 100102 of 298 5.10 If Ofgem is unwilling to make the necessary changes to make all tariffs simple and fair, then the Government has a duty to take action. 5.11 In response to the issues that consumers are facing in getting a better energy deal, Which? and 38 Degrees launched The Big Switch13 in February 2012. This aims to use the combined switching power of thousands of consumers to negotiate with energy suppliers and secure a market leading deal.

6. Will Ofgem’s proposals (including on standard tariffs and greater transparency of information published by energy companies) help to increase public trust in energy companies? 6.1 Ofgem’s research found that a regulated standing charge would “increase consumer trust in their tariffs and the energy market more generally”14. However, this would be a hollow victory if suppliers continue to price standard tariffs uncompetitively. The Centre for Competition Policy has warned Ofgem of a highly undesirable outcome where standard tariffs become part of a ‘bait-and-switch’ strategy, with the ‘switch’ part of the deal – a poor-value standard tariff – given credibility by the regulator. 6.2 Ofgem’s proposed price comparison guide, the “Standard Equivalent Rate” (SER), may be ineffective. The SER calculates an ‘effective unit rate’ to compare differently structured tariffs. However, for comparisons involving non-standard tariffs, consumers will have to decide whether they are a low, medium or high user. Since people generally have low awareness of their energy consumption, they cannot be expected to decide which category they fit into and this may further entrench poor decisions. 6.3 Ofgem should build trust by extending their simple format to all single-rate tariffs15. A market where consumers only had to look at the unit rate to determine the cost of a tariff would be more transparent and more likely to be trusted. It would eliminate the need for the problematic SER, while increasing the range of media in which tariff prices could be displayed and alert a larger number of people to lower-priced offers. We would expect it to reduce the scope for companies to mislead in their marketing, as well as improve energy bill clarity. 6.4 Nevertheless, tariff reform is just one of a number of changes needed to increase trust. Recent Which? reports on energy company sales practices and complaints highlight the need for systematic changes by suppliers . Continued poor practice may explain why trust levels in the industry remain low and our recent energy supplier satisfaction survey found serious dissatisfaction with most of the major suppliers17.

7. To what extent are consumers aware of policies such as the Green Deal, smart meter roll out and Ofgem’s Retail Market Reform that could affect the way they use energy in their homes and their engagement in the market? And what are their perceptions of the schemes? 7.1 Until they move from the realms of government policy debate to having a practical impact on consumers’ lives, awareness of the Green Deal and the smart meter roll out will remain low. At present, householders are not well aware of the offers available under the Carbon Emissions Reduction Target (CERT)18, and there is little to suggest that awareness of the Green Deal will be significantly higher.

13 http://whichbigswitch.co.uk 14 Ofgem, 2011 (http://bit.ly/xChPek) 15 See footnote 12. 16 See: “Kept In The Dark”, Which? Money, November 2011 / “Energy Complaints: How Satisfied Are You?”, Which? Magazine, February 2012 / “Supermarket energy deals exposed”, Which? Magazine, March 2012. 17 Which? Utilities Satisfaction Survey of 8,271 UK adults, November 2011 18 Evaluation of CERT for DECC by Ipsos Mori, CAG and BRE.

Page 103101 of 298 7.2 Our recent research exploring19 reactions to the Green Deal concept found that unless it offers a substantial and guaranteed net saving on energy bills, it is extremely unlikely to have widespread appeal. While there was some appeal in spreading the cost of measures that have a short term payback, this reduced as the amount and length of payback increased. People also consider the Green Deal charge a debt, which they would rather not incur. This is supported by qualitative research for DECC which highlighted a number of barriers and concerns, mainly focussed on the financing mechanism, with only a small number expressing a strong interest in the Green Deal20. 7.3 With regard to smart meters, people have some idea that they will allow them to monitor their energy consumption. However, a mere 10% spontaneously mention that smart meters would help them save money21.

8. What are the potential implications of a lack of consumer awareness in these areas? 8.1 We are sceptical that the Green Deal will drive the kind of consumer engagement with energy efficiency that the Government has ambitions for. As a commercial, market- based financial product which charges interest, it is unlikely to be attractive enough to consumers who have not taken up free or heavily-subsidised insulation offers under CERT.

22 and we are concerned that, as currently framed, the Green Deal will not facilitate such approaches. 8.3 While consumers with smart meters are generally positive about the experience, accurate billing seems to be the greatest benefit. We remain unconvinced that smart meters will necessarily lead consumers to cut back on energy consumption. 8.4 Some consumers are concerned about the smart meter roll-out, particularly with regard to its cost, as well as data privacy and health issues23. 8.5 The Government’s strategy for the smart meter roll-out depends on positive consumer engagement to let installers through the door to keep costs low and to change their energy use. 8.6 Which? commissioned the Centre for Sustainable Energy (CSE) to review the roll-out from a consumer perspective in summer 201124. This highlighted the lack of effective mechanisms to control costs, as well as concerns about suppliers leading the roll-out and the decision to install ‘one house, one meter at a time’ when a street-by-street approach may improve engagement and cut costs. 8.7 Which? is concerned that the Government’s hands-off approach to rolling-out this major infrastructure project leaves it in danger of being fundamentally undermined. Without a rethink, opposition could grow to a ‘blank cheque’ being written for the industry and consumers could resist having a meter installed in their homes, which will drive up costs. The Government should stop the current voluntary roll-out of early smart meters and review its plans, placing cost control and consumer engagement at their heart.

19 Quadrangle, Autumn 2011 20 Consumer needs and wants for the Green Deal, undertaken by Ipsos Mori for DECC, November 2011. 21 Which? spoke to 2,003 energy bill paying UK adults in April – May 2011. 22 Evaluation of CERT for DECC by Ipsos Mori, CAG and BRE. 23 http://conversation.which.co.uk/energy-home/smart-meter-roll-out/. For all related Which? Conversations see http://conversation.which.co.uk/tag/smart-meters/ 24 “The smart metering programme: a consumer review”, a report to Which? by the Centre for Sustainable Energy, November 2011

Page 104102 of 298 9. Is greater consumer education needed and if so, who should take responsibility for this, who should deliver it and how should it be delivered? 9.1 Energy efficiency is a nebulous term for consumers25. When people talk about being energy efficient, they are just as likely to be thinking about smaller measures such as turning lights off as they are to have insulation in mind. People aren’t clear about the behaviours or measures that are most effective in reducing consumption and costs26. 9.2 Considerable work is required to educate consumers about energy efficiency, including more consistent and clearer messages about what it entails; why people should care at both a personal and societal level; and what role they can play. 9.3 In the short to medium term, campaigns focusing on specific measures that can be readily understood, such as loft or cavity wall insulation, would be more effective. The timing of these messages is also important, for example, when renovating or refurbishing your home27. 9.4 Consumers need a range of trusted sources for advice and information. While they are not typically looking for energy efficiency advice, they believe that Government should have a role in galvanising people to take action.

25 Quadrangle, Autumn 2011 26 Quadrangle, Autumn 2011 27 Quadrangle, Autumn 2011

Page 103105 of 298

10 What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies? 10.1 We are concerned about the way that the costs of social and environmental policies, including CERT and the ECO, are paid for through bills. As it is assumed that these are recovered as a flat ‘per customer’ amount, they disproportionately impact those on low-incomes. Low income households tend to use less energy28 and yet their energy bills do not reflect this. Low users can pay up to 15% more for electricity and 23% more for gas than high users. 10.2 Greater scrutiny is needed of Government decisions on which programmes are funded through bills. In particular, programmes focused on social issues should be funded through taxation. This is supported by consumer opinion. Most people feel it is appropriate for the Renewables Obligation to be funded through bills, while the Winter Fuel Allowance is better suited to tax. 10.3 Suppliers should recover all policy costs through the unit rate, not as a per customer amount through the fixed element of the tariff. This would respect the ‘polluter pays’ principle and, given the correlation between income and energy consumption, be more progressive. 10.4 The Government should rethink the way that the ECO is supporting the Green Deal via bills. The focus on solid wall insulation is an inequitable and cost-ineffective way to finance energy efficiency. The focus should instead be on helping people reduce their energy bills at lowest cost to consumers overall. Support for cavity wall and loft insulation should continue through the ECO, at least during early years, to achieve this. The ECO should also give more emphasis on helping low-income and vulnerable consumers. A fuller assessment is needed by DECC of the potentially negative impact of the ECO on fuel poverty. March 2012

28 Accounting for 45% of the CO2 emissions produced by the most affluent 10% of households

Page 104106 of 298 Written evidence submitted by Silver Spring Networks (CE 16)

Consumer engagement with energy markets

Silver Spring Networks provides a networking platform that enables utilities to transform power grid infrastructure into a smart grid. We provide the hardware, software and services that allow utilities to deploy and run multiple smart grid solutions, including smart metering, distribution automation, and demand side management over a single unified network.

Our Smart Energy Platform is based on open, Internet Protocol (IPv6) standards, allowing continuous, two-way communication between the utility and devices on the grid.

We have considerable real world experience of running smart grid and have overseen a number of deployments worldwide, having networked more than 10 million businesses’ and homes’ devices with leading utilities in the Americas and Australia, including Baltimore Gas and Electric, Florida Power & Light, Pacific Gas and Electric amongst others. Our experience has given us a great deal of insight into the challenges that can arise from poor consumer engagement. We wish to make the following points:

1. Smart metering and smart grid developments have the potential to fundamentally change the relationship between supplier and consumer. Smart metering should give the consumer greater knowledge, and greater control, over their energy consumption. Development of the smart gird should be part of the wider trend of consumer empowerment driven by internet developments and the better information that has made available.

2. However, we recognise that consumers may have concerns or questions about smart grid developments. Common concerns are that smart meters may: a. Lead to higher energy Bills b. Not measure energy use accurately c. Reduce consumer privacy d. Pose health risks

3. While smart metering development should be a positive step towards building consumer engagement and trust in the energy market, concerns and misconceptions about the technology and its implications can, if not addressed appropriately, seriously impact roll-out and damage trust between consumers and their energy suppliers. It is therefore vital that consumer engagement is front of mind as the UK progresses its smart metering roll-out. As the President of Pacific Gas and Electric, a US utility, has commented “we thought we were undertaking an infrastructure project but it turned out to be a customer project”. It is essential that utilities and the UK Government understand this, and they must ensure that consumer engagement is front of mind as the smart metering roll-out progresses.

Page 107105 of 298 on average an increase of 45%.1 Consumer education should therefore be a key and early priority. In the US we have considerable experience of running such programmes with or for utility partners. We have found the following approaches to be particularly useful: a. We have created a Communications Council to serve as a peer group for our utility clients to come together and share insights, lessons learned and best practice for consumer engagement. This has enabled utilities to use consistent, high quality messaging and has inspired new ways of communicating. b. Sustainability education in schools should cover smart metering and grid issues. Our ‘Smart Energy Future’ curriculum, developed in conjunction with a non-profit organisation the Education Development Centre, has been devised to help teachers, students and their families to understand the role of smart grid in addressing national and global energy challenges. c. We have worked closely with a range of respected third party advocates with reach into key consumer audiences, for instance working with civil society and religious groups to provide information about smart grid. d. We have developed utility employee training programmes, to ensure that all employees who communicate directly with customers have a clear understanding of smart grid developments and what they mean for consumers.

5. Finally we note that choosing right communications network platform for smart metering will be essential to delivering consumer benefits in the long term. Having a platform that meets the requirements for a wide range of smart grid developments – not just basic meter reading – will enable a proliferation of consumer benefits in the same way that provision of high speed mobile internet has enabled a proliferation of ‘apps’ and technologies in recent years.

6. Based on our experience in the US and other markets, we believe that given the limitations of currently available communications technologies, the UK’s £11bn smart metering rollout may be exposed to risk due to inadequate coverage and a constrained set of benefits.

7. We believe that the UK could significantly reduce risk and increase benefits from its smart metering roll-out if suitable spectrum were made available to allow the use of sub-Ghz wireless radio-frequency mesh. This platform provides ubiquitous coverage, allows for multiple data transactions per day (facilitating a wider range of smart grid applications, not just basic metering), and critically has a significantly lower CAPEX and OPEX than, for example, GPRS.

We would be very happy to provide further information on any of these points.

March 2012

1 Understanding Consumers’ Attitudes about Smart Meters and the Smart Grid, Green Research, http://www.silverspringnet.com/pdfs/whitepapers/SilverSpring-Whitepaper-Green-Research-2011.pdf

Page 108106 of 298 Written evidence submitted by Lynne Wycherley (CE 17)

Engagement with Energy Markets: the disturbing issue of ‘smart meters’

Executive summary Smart-metering can be achieved using fully-wired means (e.g. using phone lines/ethernet); however, utility companies are pushing wireless installations that use aggressively pulsed microwaves. Independent analyses shows their emissions are far higher than industry claims, with high ‘spikes’. Internationally, these meters continue to be dogged by distressing symptoms (typically headaches, trashed sleep, nausea, dizziness, heart arrthymia) consistent with microwave radiation sickness syndrome known for 60 years. However, energy company websites demonstrate an absence of transparency, with no mention of these risks, and market smart-meters vigorously, often with ‘hooks’ (rewards for accepting them). The implications are extremely serious. Firstly, installation of wireless meters will pollute homes with inescapable symptom-risking pulsed microwaves, violating the Human Rights Act, Articles 2, 8, & 14. Secondly, the absence of transparency means that present and future consumers with symptoms are unlikely to connect them with their meters: we therefore risk bewildered consumers struggling with illness in their own homes, presenting to equally bewildered doctors. Those who manage to make the connection will have no escape – Non-prosecution of householders who decline a meter will fail to give consumer protection: pulsed microwaves pierce walls, floors, flesh: wireless meters will pollute both neighbours’ houses, and neighbourhoods. Thirdly, wireless meters will add to the pulsed-microwave ‘load’ in the home: a substantial body of warning science testifies to its chronic toxic risks. Fourthly, because of non-transparency, few consumers will request non-toxic wired alternatives; the industry will therefore pursue a symptom-risking roll-out unchallenged, the full chronic impact of which may take years to emerge, and be costly to rectify.

Therefore, fully wired smart meters represent the only humane option, and would best serve UK consumer interests. Because distressing symptoms linked to wireless meters occur at 3 to 4 orders of magnitude below current, highly controversial ‘safety guidelines’, there is a need to assert the Precautionary Principle to veto their use, and to guard against further stealth transmitters in the home. Because existing institutions (e.g. the HPA /Dept of Health) remain attached to these non-protective guidelines, ethical public information will need to come from independent bodies.

Full memorandum: The relevant Terms of Reference ‘To what extent are consumers aware of policies such as the...smart-meter roll out...’ ‘What are the potential implications of a lack of consumer awareness in these areas?’ ‘Is greater consumer education needed ...?’

Page 109107 of 298 1. 1. Smart-metering can be achieved using fully wired means. This is relatively simple,

and employs (for example) phone lines or ethernet: some Itron models, for example, are designed with the option of using phone-lines or ethernet, and have already been installed successfully using this option (e.g. in parts of Ontario). 2. 2. However, utility companies are pushing wireless installations that use aggressively pulsed microwaves. This is, as far as one can tell, because these can be installed a fraction more quickly, using fewer materials. However, it would be unwise to leap at such short-term expedience, and marginal cost savings, at the risk of long-term toxic liability, and public distress.

3. 3. Independent analyses show pulsed microwave emissions from these devices are far higher than industry claims, with high ‘spikes’ as they transmit data. See, for example, independent analyses by nuclear expert Daniel Hirsch, and by consultants C.Sage & P.Sierck; and see flux-density readings made at actual installations (e.g. as uploaded on youtube), sometime speaking at fifty to a hundred times the levels at which microwave intolerance symptoms (according to data by Powerwatch) begin to be self-reported.

4. 4, Emissions are intensified in those households who, unknowingly, host an extra antenna or ‘repeater’ to relay neighbourhood data: this is another serious issue of non-transparency.

5. 5. Internationally, wireless smart meters have been dogged by distressing symptoms. These are typically (but not limited to): headaches, nausea, dizziness, trashed sleep, heart arrthymia, and cognitive problems (also depression/anxiety/tinnitus). Testimonials include those of consumers reduced to fleeing their homes. There is a particularly high volume of public testimonials from across North America. For example, after installation in California in 2010, over 2000 health complaints were filed, testifying to intense symptoms. Expensive law-suits, and costly replacement with analogue meters, have ensued. (Longer cycles are not a solution: some subjects have reported frequent waking corresponding to each microwave ‘burst’.) These are precisely the kind of ‘early warning signs’ that the Council of Europe has urged all governments to heed in relation to microwave exposures [Document 12608, May 2011].

6. Due to the cumulative, chronic nature of pulsed-microwave toxicity, the full human impact of wireless smart-metering may not be known globally for many years. Therefore, such early warnings are valuable and need to be respected, and responded to by precautionary steps to avoid exposure, i.e. seeking fully wired solutions.

7.And therefore, the alleged ‘benefits’ of wireless smart-meters by those who promote them need to be balanced by their human cost: one could argue that trapping people, without transparency, in polluted symptom-risking homes and

Page 108110 of 298 neighbourhoods, cannot in conscience be justified by any alleged ‘benefits’ whatsoever, particularly as fully wired solutions are available. 8. This symptom-set (5), is consistent with microwave intolerance syndrome, or radiation sickness, known from weak whole-body exposures since the 1950s: see, for example the work of distinguished scientists and radiation historians Professor Karl Hecht, and Professor Henry Lai. Moreover, it is consistent with symptoms associated with other involuntary pulsed-microwave exposures, such as close range phone- mast radiation (see papers by e.g. Oberfeld /Navarro/ Abdel-Rassoul / Bortkiewicz / Hutter / Riddervold / Santini/ Eger & Jahn / Heinrich), and the imposition of wi-meshes (e.g.): Unbeknownst to me, the local council decided to erect a Wifi-mesh system throughout the town centre. The first I ‘knew’ of it was splitting headaches – the first I’d ever had – nausea, insomnia, dripping sweat, a sense of ‘needles’ in my eyes... My wife’s experience was similar... We soon discovered we were not alone – Stephen Kane, Glastonbury [published online] (Military microwave scientist Dr B Trower has come out of retirement to stress the toxic risks of such schemes). However, it needs to be noted that because the intensity of smart- meter transmitting ‘spikes’ exceeds these examples, the need to protect consumers is overriding. 9. Disturbingly, company websites demonstrate an absence of transparency with regard to these risks, (one also wonders if they are in denial, i.e. have internal cultures that discount these risks plus the international testimonials of people with distressing symptoms). Their websites market smart-meters vigorously, often with ‘hooks’ (rewards for accepting a wireless smart meter), with no mention of these risks. Parliament’s Public Accounts Committee (31.10.2012) noticed large benefits for companies pushing these meters, such as cost savings (e.g.: meter-readers can be made redundant) and new access to consumer data (enabling them to market products); in other words, there is every incentive for energy providers to market these devices vigorously (including to governments), and none for transparent admission of their potential risks.

10. Because these symptom risks are almost wholly unknown to the British public (for example, U.S./Canadian health impacts have been limited to their national press), affected subjects in the UK’s small trials are unlikely to have made a connection. [Any meaningful trial surely needs close health monitoring, including symptom questionnaires for every household]. That said, I have noticed bewildered voices have begun to appear: (www.thisismoney.co.uk/money/bills/article-2059912 on smart meters ): A number of these devices have been installed in the vicinity and now my wife and I are getting constant headaches just when we are at home, we find it hard to get to sleep and when we do its broken and sleep after 5am is rare. I have been told these smart meters pulse out high levels of electrosmog every 6 minutes as they‘poll’ ...I read that 200,000 homes are to have these meters in 2012 and I wonder how many will be affected like ours. - Andrew Washington, MAIDSTONE, UK, 20/11/2011 10:06

Page 109111 of 298 11. The implications are extremely serious. Firstly, the violation of human rights – Article 2:freedom from torture (one U.S. mayor correctly observed that for anyone with distressing symptoms, blanket imposition of pulsed-microwave meters would be “a living nightmare”) / Article 8: freedom to enjoy one’s home / Article 14: freedom from discrimination – i.e. we must not discriminate against consumers who discover they are less able to tolerate these pulsed microwave bursts, physiologically, than others.

12. National installation of wireless meters would pollute millions of homes with avoidable pulsed microwaves. Non-prosecution of those who decline meters will fail to give consumer protection: pulsed microwaves pierce walls, floors, flesh, and will pollute both neighbours and neighbourhoods.

13. The absence of transparency on symptom risks means that present and future UK consumers with linked symptoms are unlikely to connect it with their meters. We therefore risk the spectre of bewildered consumers struggling with illness in their own homes, presenting to equally bewildered doctors.

14. Wireless meters will add to the microwave ‘load’ in the home, already increased by wi-fi antennae/DECT cordless phone bases (etc). This is no trivial matter: there are now many papers on weak pulsed microwaves’ genomic and bioactive effects, including DNA breakages, aberrations & delays in repair (please see work by, for example, Paulraj, Nikolova, Adlkofer, Lai & Singh, & teams led by Aitken/ Bahong / Phillips/ Gandhi / Kim/ Yoa/ Lixia / Franzellitti /Manti / Zhang /Mashevich/ Sykes / Ferreira/ Mancinelli /Focke/ etc); altered gene expression (Balyaev/Lee/ many papers), pro-cancerous heat-shock proteins (French 2002/ de Pomerai/ Velizarov etc); and other signs of cellular/oxidative distress (Garaj-Rhovac/Prof Blank, etc etc,)

15. Meanwhile, two other important factors provide clues to intolerance symptoms from wireless smart-meter’s microwave bursts. These are (i) measured physiological effects from ‘weak’ pulsed microwaves, such as increased blood-brain permeability (many animal studies, eg. Sirav/ Eberhardt/ Oscar/ Frey); and (ii), the toxicity of the aggressively pulsed modulation: Dr Blackman (overview of published studies) charted higher DNA damage and EEG/neural effects from weak pulsed microwaves compared to c.w. (continuous waves). (One can see a similar effect in the 100-pulse-per-second battering ram of DECT cordless phone- stands, which can stress the heart: Havas 2010)

16. Because of consumer innocence, few will request non-toxic wired alternatives, and therefore the industry may pursue a roll-out of symptom-triggering meters unchallenged (surely such exploitation of consumer ignorance is unethical), which would be expensive to correct later on. – As in all toxicology, it may be years before the full chronic effects emerge.

Page 112110 of 298 17. If wireless meters are pursued, then logically, the only ethical, fully transparent, course is to supply every consumer household, and GP surgery, with sample testimonials of those afflicted by pulsed microwave meters, so they can make an informed choice about whether to accept one.

18. These distressing symptoms (5.) occur at 3 to 4 orders of magnitude (10,000x ) below current, highly controversial, microwave ‘safety guidelines’ [ICNIRP]. These were originally based only on acute, high-level microwave exposures that ‘fry’ us (cause thermal injury), to the neglect of all chronic, non-thermal toxic effects, now known from many science papers (see, e.g., 14-15) Large numbers of ethical scientists (e.g. the International Commission for Electromagnetic Safety) in neurology, cell biology, biophysics, and other areas of medical expertise, have pronounced these obsolete, and are calling for their reform. (To anyone with symptoms, they are comparable to a line drawn through the moon when actual protection is needed at ground level). Although inconclusive, sometimes negative, short-term studies have allowed these guidelines to persist – a common problem in toxicology – more cautious countries such as Russia, Switzerland, Belgium, and China, have guidelines several magnitudes lower.

19. Simultaneously, the European Environment Agency (since 2007) and Council of Europe (May 2011) have strongly urged reductions in people’s involuntary pulsed- microwave exposure, particularly indoors, in line with the Precautionary Principle (iterated by our own 2000 Stewart Report): “when there are indications of possible adverse effects, though they remain uncertain, the risks from doing nothing may be far greater than the risks of taking action to control these exposures.” – Therefore, when energy companies, or those who back them, boast that wireless meters’ emissions (however symptom-triggering) are well within ICNIRP guidelines, as a means of silencing valid consumer concerns, we need to state that this in no way nullifies the health distress being risked or experienced.

20. Similarly, since the HPA and Dept of Health have difficulty seeing past these guidelines, and choose to be disempowered by them, ethical information for consumers will need to come from independent bodies. (The DECC, who have been working closely with energy providers, may perhaps lack the desired impartiality). There may be an inherited bias in these institutions due to consumer concerns (re: microwaves) when there was less warning science to support them, compounded by the fact that the warning science, although substantial and growing, struggles to be heard – The EEA and Council of Europe has urged governments and regulators explicitly to heed it, "There are many examples of the failure to use the precautionary principle in the past, which have resulted in serious and often irreversible damage to health and environments... Waiting before taking action...can lead to very high health and economic costs, as it did with asbestos, leaded petrol, and smoking” – Jacqueline McGlade, executive director of the EEA, urging a reduction in public involuntary pulsed-microwave exposure.

Page 113111 of 298 21. Summarising points 1 to 20, there is therefore a very strong case to conclude that (in relation to energy markets) fully wired smart-meters (or existing meters) are the only wholly ethical and responsible provision for UK consumers; and that such provision would helpfully create a healthy precedent for further wired smart- metering (e.g. from gas & water utilities), and thus future-proof our country, and all its consumers, against distressing, cumulative bioactive pollution of homes and neighbourhoods.

22. Finally, any further stealth transmitters (e.g. in fridges etc. in ‘home area networks’, misleadingly marketed in the name of energy efficiency) need urgently to be re-framed as potential symptom-triggers with cumulative chronic cellular risks. Bearing in mind that human beings evolved against a very low background radiation, with no oscillating microwaves, it is no surprise that these carry subtle toxic risks, and anyone may be susceptible to exposure symptoms. In line with the Precautionary Principle, and human rights, consumers confronted with energy markets need wise wired technology (= applied with precautionary biological wisdom) rather than merely ‘smart’.

March 2012

Page 112114 of 298 Written evidence submitted by Carillion Energy Service (CE 18)

Carillion Energy Services (CES) welcomes the opportunity to respond to the ECC Committee’s inquiry on Consumer Engagement with Energy Markets. In order to put our comments into context, it may be helpful to outline briefly our role in the provision of energy services across the UK and Ireland.

Carillion is one of the UK’s leading support services companies with a substantial portfolio of Public Private Partnership projects and extensive construction capabilities. The Group has annual revenue of over £5 billion, employs around 46,000 people and operates across the UK, in the Middle East, Canada and the Caribbean.

Carillion Energy Services, a division of the group, are a leading independent energy services provider and one of the largest installers of renewable technologies and domestic heating services in the UK. We currently operate within the Private, Domestic, Social and Commercial market sectors offering a wide range of energy efficient renewable technologies and domestic heating services to our customers. CES has the ability to source responsive funding solutions, design & implement a customer centric offering and deliver the installation of required measures with the support of an established supply chain network.

We manage Warm Front on behalf of Department of Energy and Climate Change and we also have experience of working for the Welsh Assembly Government on the Home Energy Efficiency Scheme, the Warm Homes initiative in Northern Ireland and the Central Heating and Warm Deal programme in Scotland. We also worked closely with Utilities and Local Authorities in managing the delivery of energy efficiency programmes.

Carillion Energy Services are committed to helping the environment and combating climate change; as referred to above we have a history of providing energy efficiency and renewable energy solutions to private housing and social housing and we will be increasing our activity in these sectors as well as expanding our commercial energy services offer taking a total energy management approach.

Prior to the Feed-in Tariff scheme we led renewable innovations through the installation of over 10,000 microgeneration systems including solar thermal and air/ground source heat pumps.

Under the Feed-in Tariff scheme we showed how innovative funding programmes could bring renewable measures to the social housing sector. Our Clean Energy Programme works in conjunction with the Government’s Feed-in Tariff to install solar photovoltaic panels on social housing properties, we are working with a number of social landlords to provide free electricity to social tenants.

Within our Carbon Services team, we support the largest number of area-based programmes in the UK, leveraging multiple funding sources to accelerate delivery against policy objectives and drive the Government’s climate change and carbon reduction agendas. Our work with the UK’s major utilities and energy suppliers allowed us to deliver a total carbon saving of 6.2 million tonnes from energy saving measures and products in 2011.

Page 113115 of 298

For further information on Carillion Energy Services please visit - http://www.carillionplc.com/

1. How “energy literate” are consumers in the UK? For example, are most consumers aware of how much their bills vary according to usage? Are terms such as “kWh” understood by most consumers?

1. It is important to acknowledge that energy consumers are diverse and have varying needs though it is clear that a significant proportion of people are not energy literate, as research conducted by Consumer Focus demonstrates.1 When helping consumers to better understand their energy bills, it is key not to make assumptions. Consumer Focus highlight, for example, that generally, older people and those in socio- economic category D or E are more likely to understand their energy bills than younger people or people in a professional socio-economic classification.

2. This suggests that low energy literacy does not necessarily correspond solely with perceptions of disadvantaged consumers, for example, those more likely to be fuel poor, and there exists a more complex range of reasons why consumers are not energy literate. Ofgem’s Consumer First Panel notes that the “energy industry is a very complex subject matter…that many consumers are not actively interested in, aside from how much their bill costs”2

3. Furthermore Ofgem note that complex technical terms such as Kwh are almost universally perceived as difficult to interpret as they are not contextualised in a form relevant to consumers.3

2. To what extent are consumers aware of the different components that make up their energy bills and the relative contribution of each aspect? (e.g. wholesale costs, transmission and distribution charges, environmental/social policies and VAT)

4. We would contend that consumers are generally aware that their energy bills comprise different elements but they cannot usually attribute costs to each proportion of their bill. It is notable that Ofgem have found that consumers tend to overestimate

1 Green Deal or No Deal, Consumer Focus 2010. 2 Ofgem Consumer First Panel, October 2009 3 Ofgem Consumer First Panel, November 2011

Page 116114 of 298 the cost of environmental policies potentially in part due to reporting of this issue in the media.4

3. To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this?

5. CES believes that consumers have a broad awareness that energy costs are likely to rise in the future, continuing the trend that has accelerated since 2004 and that extends beyond household energy bills affecting transport and food costs for example. Rising energy prices have a direct impact on all households and evidence of multiple concerns surrounding debt, fuel poverty, and perceived market failure are embedded within our national dialogue by the media, parliament, and consumer groups.5

4. What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary?

6. Multiple barriers exist to consumers switching energy suppliers. These include practical barriers, such as access to tools and information, such as online price comparison sites, and attitudinal barriers – which can be summarised as widespread consumer disengagement with the energy market.

7. We would agree with Ofgem’s assessment that because there is perceived to be little price differentiation between suppliers, switching is not always seen to be a worthwhile activity by some consumers6. Additionally, the experience of switching itself can be off-putting to consumers due to the length of time taken to switch combined with consumers often reporting that they do not experience any resultant savings. Some consumers, particularly those on a low-income are averse to switching as they fear their bills may actually increase. This illustrates that consumers often lack confidence in claims made by energy companies or are unable to accurately compare different deals.

5 http://www.telegraph.co.uk/finance/personalfinance/consumertips/household-bills/8831245/Energy- prices-70pc-of-consumers-will-use-credit-to-pay-their-gas-and-electric-bills.html, , http://www.guardian.co.uk/society/2011/dec/01/fuel-poverty-affects-quarter-households http://www.independent.co.uk/money/spend-save/simon-read-why-rich-energy-companies-talk-of- trust-leaves-me-cold-7079759.html 6 Ofgem Consumer First Panel – Year 4 November 2011

Page 117115 of 298 8. Measures that make comparing tariffs and switching supplier simpler must be supported as the greater number of consumers who switch regularly, the less incumbent customers automatically remain with one provider (usually among the “Big Six”) which arguably hinders competition. The proposals outlined in the domestic element of the RMR, such as simplification of standard tariffs, are welcome in theory, however, the standardised standing charge element of the tariff must be carefully determined to avoid being unfavourable when compared with other non-standard tariffs. Tariff Information Labelling and tariff comparison information may be beneficial but there is a danger this information will be utilised mainly by consumers who are already engaged.

9. It is questionable whether energy bills are the most appropriate medium to engage consumers in the market. As highlighted above, many consumers are only interested in how much their bill costs and an increased amount of mandatory information included in the bill may have the unintended effect of disengaging consumers.

5. Will Ofgem’s proposals (including on standard tariffs and greater transparency of information published by energy companies) help to increase public trust in energy companies?

10. Ofgem’s proposals may help consumers to feel more empowered to navigate the energy market, however, it does not necessarily follow that these measures will initially instill trust; rather they could be received as the means of better equipping consumers to do battle with the energy companies. Nevertheless, more consumer agency, resulting in more consumers switching, should, over time result in a more dynamic and competitive market that if sufficiently effective would perhaps encourage energy suppliers to overhaul their interactions with consumers to establish and maintain a higher level of trust, allowing service to become a key differentiator among suppliers.

11. It is important to recognise that negative perceptions of energy companies are pervasive throughout public life, a recent example being the “End the Big Six Energy Fix” campaign, which has received cross-party support from 70 Parliamentarians and that has also attracted considerable media coverage.7 Such

7 See EDM 2730, session 2010-12, tabled 20.02.12 and http://www.independent.co.uk/opinion/leading- articles/leading-article-time-to-end-the-big-sixs-energy-fix-6699688.html

Page 118116 of 298 campaigns may be partially offset by more positive Government initiatives such as “Big Energy Week” and “Check, Switch, Insulate to Save” but if opinion leaders are unable to show trust in the energy companies, ordinary consumers remain unlikely to depart from the mainstream view. Essentially, reforming mass opinion of an entire industry entails a lengthy process of changing attitudes rather than regulatory change only – as we are currently seeing in the banking sector.

6. To what extent are consumers aware of policies such as the Green Deal, smart meter roll out and Ofgem’s Retail Market Reform that could affect the way they use energy in their homes and their engagement in the market? And what are their perceptions of the schemes?

12. We are concerned that consumer awareness of Green Deal remains low as we approach the scheme launch date. Qualitative research undertaken for the Green Deal Network suggests that Green Deal is an unfamiliar concept to most people and the name of the scheme does not assist meaning with some panellists commenting that it triggers associations with organic produce or “5 a day” campaigns and others commenting that Green Deal sounds “Government-y like New Deal” which was considered to be negative.8 Though providers will have the ability to market Green Deal in a variety of more attractive and innovative ways it may become necessary for Government to provide public information on the programme, in a similar manner to the Digital Switchover, for example, in order to meet its estimates of 3.6 million domestic Green Deal sales by 2022.9

13. Another issue highlighted by Behaviour Change is the need for consumers to understand that Green Deal is a fundamental shift from a grant or supplier funded programme to a finance based mechanism as many consumers thought Green Deal was little more than a change in terminology, citing for example, “It’s a Government thing to get your loft done for £100.”

7. What are the potential implications of a lack of consumer awareness in these areas?

8 Qualitative Research into Communication of the Green Deal, Behaviour Change, December 2011. 9 DECC, Green Deal Impact Assessment, November 2011.

Page 119117 of 298 14. The obvious consequence of lack of consumer awareness of Green Deal is underdelivery of the programme, which will have a detrimental impact on wider policy targets such as the statutory obligation to eradicate fuel poverty by 2016, the obligation to cut carbon emissions by 20% by 2020, and to a lesser degree, the EU Renewable Energy Directive. Not only will this be detrimental to policy objectives, this would also be likely to have a negative impact on green jobs if there is little demand for Green Deal and ECO, following transition from CERT.

8. Is greater consumer education needed and if so, who should take responsibility for this, who should deliver it and how should it be delivered?

15. We believe greater consumer education is needed and this should be delivered by multiple channels to reflect the diverse make-up of domestic and non-domestic energy consumers. Government should take a lead on this to ensure that policies can work together, for example, ensuring that smart metering and Green Deal are able to work in conjunction with feed-in tariffs and the RHI as participation in one particular scheme can act as a valuable hook to engaging customers further. Green Deal and the roll-out of smart metering both present opportunities to engage customers on energy management in their homes though it is vital that provision of energy advice, services, and products is underpinned by robust consumer protection to secure trust.

16. Vulnerable customers may need specifically tailored assistance to help them realise the benefits of technology such as smart metering, or signposting of assistance available through ECO. Our experience is that this can be successfully delivered using a community focused approach partnering with trusted organisations such as housing associations and local authorities, aided by locally based Liaison Officers.10

9. What impact does the media have on public perceptions of energy bills?

17. As per our responses to questions 2, 3 and 5, it is clear that the media have an important impact on public perceptions of energy bills. According to Consumer Focus, consumers are more likely to use internet search engines, television, or the print media to research social or environmental issues than they are to use

10 Case studies on our Clean Energy Programme and delivery of the Switchover Help Scheme are available on request.

Page 118120 of 298 Government, not for profit, or commercial sources of information, underlining that the media can somewhat set the agenda on energy bill debate11.

10. What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies?

18. Whilst we appreciate the rationale for funding social and environmental policies through levies on consumer energy bills rather than through taxation, Government must exercise caution to ensure that these policies do not have a regressive impact on the same households they are designed to help. In relation to the ECO the levy could be applied on a per kWh basis, as suggested by the Association for the Conservation of Energy and the Eaga Charitable Trust12, as low-income consumers tend to use less energy and additional safeguards could be added for low-income high use consumers, such as an initial number of levy free units.

March 2012

11 Consumer Focus, Green Deal or No Deal, 2010 12 ACE, Costs of the ECO: the impact on fuel poverty, 2011

Page 119121 of 298 Written evidence submitted by the National Grid (CE 19)

Summary • As part of our work under the new regulatory framework process (RIIO), National Grid commissioned a survey into Consumers' Views on Transmission. One of the objectives was to better understand current levels of knowledge of energy bill composition among bill payers. Approximately a third of those we surveyed (both electricity bill payers/decision makers & gas bill payers/decision makers) did not feel able to estimate the breakdown of their energy bills.

• We support increased consumer engagement with energy markets, and feel it is important that we play our part in educating consumers about the need for investment in networks to ensure continued security of energy supply, to manage the transition to a more diverse and lower carbon energy future and to stimulate green economic growth. We would ask Government and policy makers to help communicate the need for investment in new infrastructure in order to connect up new forms of low carbon generation and thus help the UK to meet renewable and climate change targets.

• Through Affordable Warmth Solutions we reach out to the 20% most deprived areas in National Grid’s gas distribution network area offering services including the provision of gas connections, new or improved heating systems and with the support of our partners, we provide qualifying households/consumers with tailored energy saving and tariff advice.

About us

National Grid owns and manages the grids to which many different energy sources are connected. In Britain we run systems that deliver gas and electricity across the entire country. In the North East US, we provide power directly to millions of customers. We hold a vital position at the centre of the energy system. We join everything up.

We all rely on having energy at our finger tips; our society is built on it. From the warmth and light we rely on at home, and the power which keeps our factories and offices going, to the mobile communications and other infrastructure technologies that are essential parts of our modern lifestyle. We at National Grid have a role to connect people economically to their fuel of choice.

That puts National Grid at the heart of one of the greatest challenges facing our society; supporting the creation of new sustainable energy solutions for the future and developing an energy system that can underpin our economic prosperity in the 21st century.

Developing an energy system which is secure, reliable and efficient will require significant investment in diverse energy sources, such as offshore wind, tidal, marine, CCS and nuclear. In Project Discovery, Ofgem identified £200bn that needs to be found in the next ten years to secure sustainable energy supplies, and has introduced RIIO - a performance-based model to ensure consumers pay a fair price for this vital investment.

To what extent are customers aware of the different components that make up their bills and the relative contribution of each aspect?

In 2010 Ofgem introduced a new regulatory framework known as the RIIO model (Revenue = Incentives + Innovation + Outputs) which incentivises network companies to deliver the outputs demanded by consumers and users in an efficient and innovative way. This new framework puts stakeholders at the heart of our business; their input is integral to the development of our business plans and ensuring that we deliver the levels of safety, resilience and reliability that they want.

Page 120122 of 298 Over the last eighteen months National Grid has been proactively engaging with stakeholders to inform the development of our gas distribution and gas and electricity transmission business plans under the RIIO regulatory framework. These business plans set out how we plan to modernise our infrastructure to connect people to the energy they use from 2013- 2021. As part of this process we undertook some consumer perception research.1 Our research into Consumers' Views on Transmission in May 2011 surveyed 1000 domestic consumers, asking them a number of questions about their attitudes to energy transmission. One of the survey objectives was to better understand current levels of knowledge of energy bill composition among bill payers / decision makers.

The report covering the key findings from the survey2, the full set of data tables3 and the questionnaire4 are publically available.

Electricity: Knowledge of energy bill breakdown

We found that knowledge of the composition of electricity bills is somewhat varied: a third (31%) of all electricity bill payers/decision makers did not feel able to estimate the breakdown of their electricity bills.

Of the 69% of bill payers/decision makers who did feel able to estimate the breakdown of domestic electricity bills they generally overestimated the cost of the transmission element of domestic bills. Six in ten (63%) electricity bill payers overestimated the proportion of domestic electricity bills which goes towards transmission by at least 2 percentage points. Just under a third (29%) were within one percentage point of the correct answer of 4%.

Results from the survey shown in Fig 1 (located in the appendix) indicate, on average bill payers/decision makers significantly overestimated the amount spent on VAT and meter provision, while underestimating the cost of distribution and environmental charges.

Gas: Knowledge of energy bill breakdown

Gas bill payers/decision makers display a similar level of knowledge of the breakdown of domestic gas bills as electricity bill payers, with 33% feeling unable to estimate the breakdown of their gas bills.

Of the 67% of bill payers/decision makers who did feel able to estimate the breakdown of domestic gas bills. Gas bill payers/decision makers generally overestimated the cost of gas transmission. 87% believe that the proportion of domestic gas bills which goes towards transmission is 5% or more, 2 percentage points higher than the actual charge for transmission, which constitutes 3% of the bill.

1 For example: Gas distribution qualitative consumer research:

Consumer views on transmission: http://www.talkingnetworkstx.com/consultation-and-engagement.aspx

2 http://www.nationalgrid.com/NR/rdonlyres/B6F18C8B-03CF-4428-8103- 2EA91185B81A/48198/AttitudestoEnergyTransmissionJuly2011.pdf

3 http://www.nationalgrid.com/NR/rdonlyres/E30BD067-D8FF-4233-9085- 10BD0AFED549/48199/WTPWorkingtables.pdf

4 http://www.nationalgrid.com/NR/rdonlyres/A931BE13-BA07-4DC9-BFEC- 8B12B5E15AE0/48197/Appendix1AttitudestoEnergyTransmissionQuestionnaire.pdf

Page 123121 of 298 Fig 2 (located in the Appendix) shows that, on average, bill payers/decision makers also overestimate the charges for VAT, environmental costs and meter provision, while underestimating wholesale energy and supply costs.

Once they had estimated the relative cost of electricity and/or gas transmission, bill payers/decision makers were informed of the actual proportion spent on electricity and/or gas transmission (depending on which of the two services they use). They were then asked whether or not the proportion spent on transmission represents good value for money.

Overall, as Fig 3 (located in the Appendix) shows, energy bill payers/decision makers are twice as likely to say that the cost of transmission is good value for money, than say it represents poor value. 42% of electricity bill payers/decision makers say electricity transmission is very or fairly good value; 17% say it is fairly or very poor value. 43% say gas transmission is very or fairly good value; 18% say it is fairly or very poor value.

In addition to the research into energy bill awareness we also surveyed about willingness to pay for undergrounding electricity transmission lines and maintaining existing or additional spend on safety, reliability, environment and social obligations across our gas distribution networks. These results are available by following the links at the bottom of page 2.

To what extent are consumers aware of the future projected levels of energy prices and the drivers behind this? Our specific research on this topic is limited. Throughout our qualitative engagement consumers have consistently expressed an awareness of rising energy prices. In both our transmission and distribution business plans submissions we have provided clear and transparent information on how our proposals are likely to affect end consumer bills5. For example in the stakeholder summary of our November 2011 gas distribution business plan submission we responded to our stakeholder’s desire for greater transparency in the make up of gas bills by providing a breakdown and explanation of the change in charges, as well as factors that may impact on the charge levels over the eight year price control period.6

Reaching out to consumers - energy efficiency Working with a number of organisations across the UK National Grid is actively involved in supporting energy efficiency initiatives, and also addressing issues around fuel poverty7.

Through our Affordable Warmth Solutions Programme we are involved in helping targeted groups of households and consumers in England to better understand the impact of saving energy on their bills. National Grid Affordable Warmth Solutions’ approach is based on a “whole community, whole house” package of affordable warmth measures that includes the provision of gas connections and new or improved heating systems to some 17,500 homes. With support of our partners, qualifying households and consumers are eligible for tailored energy saving and tariff advice.

At the 31 October 2011, on behalf of National Grid, Affordable Warmth Solutions had delivered 86 community schemes and connected 11,683 vulnerable homes to our gas distribution network. We estimate that the Affordable Warmth Solutions programme has helped reduce the lifetime environmental impact from old inefficient heating systems by some

Electricity Transmission: http://www.talkingnetworkstx.com/assets/downloads/BusinessPlanOverview_ELEC.pdf

6 Gas Distribution stakeholder summary: http://www.nationalgrid.com/NR/rdonlyres/2698C3CD-DCCC-41D1-99C9- D43DC47D073F/50557/FinalStakeholderSummary_06Dec11_v2.pdf (see page 17 - 20)

7 National Grid submission to the Energy and Climate Change Committee - Fuel Poverty in the private rented and off grid sector

Page 124122 of 298 950,000 tonnes carbon dioxide. In terms of potential financial savings for householders/ consumers this generates some £38million lifetime energy savings.

National Grid is also actively involved in promoting energy efficiency with partners in Scotland and Wales. We are established members of the Energy Action Scotland Business Supporters Group, and through this network National Grid sponsors the annual SCARF (Save Cash and Reduce Fuel) school calendar campaign, which aims to encourage pupils to demonstrate ways to save energy at home and their awareness of gas safety. This year the event was supported by members of the Scottish Government including First Minister Alex Salmond MSP. In Wales, National Grid is on the Board of a regulated Community Interest Company, Warm Wales-Cymru Gynnes, which aims to bring a community centred approach to economic, social and environmental sustainability. Set up in 2004 by National Grid, Warm Wales has successfully offered support to consumers, local authorities and housing associations in Wales to reduce their energy bills through the introduction of renewable energy technology to homes and buildings.

Explaining the need for new energy infrastructure to consumers As a responsible business we are firmly committed to– and invest in – a wide range of activities, which address key community issues related to our business and industry sector:- from reducing our impact on the environment and delivering safe operations, to addressing the technology and engineering skills gap through a wide range of education initiatives, including our ‘School Power’ programme

8.

We would ask Government and policy makers to help us to communicate the need case for investment in new infrastructure in order to connect up new forms of low carbon generation and thus help the UK to meet renewable and climate change targets. In addition we welcome support from policy makers in ensuring that consumers understand the impact that investment in energy infrastructure will have on energy bills.

8 National Grid: Major infrastructure projects

Page 125123 of 298 Appendix

Fig 1. Breakdown of electricity bills: Perceived and Actual

*Actual Breakdown information source: Ofgem Factsheet 97 (January 2011)9

Fig 2. Breakdown of gas bills: Perceived and Actual

*Actual Breakdown information source: Ofgem Factsheet 97 (January 2011)

9 http://www.ofgem.gov.uk/Media/FactSheets/Documents1/updatedhouseholdbillsjan11.pdf

Page 124126 of 298

Fig 3. Value for money of Transmission Cost

March 2012

Page 125127 of 298

Written evidence submitted by Consumer Focus (CE 20)

Executive Summary Consumer Focus is a statutory consumer group established by the 2007 Consumers, Estate Agents and Redress Act. We have specific duties to represent the interests of energy consumers in mainland Great Britain.

Evidence shows that consumer engagement in the domestic energy market is low; people don’t understand their bills and find tariffs confusing. The lack of trust in the market poses a major challenge for a successful smart meter roll out and potential Green Deal take-up. We support the implementation of many of Ofgem’s RMR proposals, including the changes to bills and annual statements, transposing the standards of conduct into the licence as well as introducing elements of the core proposal on tariffs. However, we have significant concerns about other aspects of the core proposal on tariffs. In particular, we are worried that the proposals will not lead to a sustained increase in consumer engagement and that there is a significant risk of unintended consequences.

How “energy literate” are consumers in the UK? For example, are most consumers aware of how much their bills vary according to usage? Are terms such as “kWh” understood by most consumers? Over the last few years extensive research has been carried out on consumer attitudes to energy bills by organisations including Consumer Focus, Which?, Uswitch, the EU Citizens Energy Forum and Ofgem Consumer First Panel. Much of this research has been focused on issues such as language, the layout of energy bills and annual statements and consumers’ understanding of terms such as kilowatt hours (kWh), calorific value, etc. The conclusions are broadly similar; many consumers are confused by their energy bills, distrustful of information provided and unsure how to use the information on their bills to carry out an accurate price comparison. In addition, many consumers find it difficult to understand how their household energy use translates into the amount owed on their energy bills1. We agree with Ofgem that the language used by suppliers in their bills, annual statements and customer communications is too complex and often not sufficiently comparable.2 Another issue affecting consumers' attitudes towards their energy bills is a lack of trust in the energy industry. Focus group research carried out by Ipsos Mori for Consumer Focus in October 20103 revealed huge levels of distrust in the energy industry which colours consumers' views of their energy bills and other communications from their suppliers. Our June 2011 report “Missing the Mark – consumers, energy bills, annual statements and behaviour change”4 assessed the extent of consumers’ understanding and engagement with information from their energy suppliers as well as the success of new information remedies. The report found an over-reliance on the use of bills and Annual Statements as the primary means of consumer engagement on energy costs and consumption. The research found that certain groups of consumers are more likely to react to information on bills or Annual Statements than others. In particular vulnerable

1 See http://www.consumerfocus.org.uk/publications/missing-the-mark-consumers-energy-bills- annual-statements-and-behaviour-change and http://www.consumerfocus.org.uk/files/2011/03/Informing-choices.pdf 2 See http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/Lawes_Language_Report.pdf 3 http://www.consumerfocus.org.uk/publications/informing-choices-consumer-views-of-energy-bills 4 http://www.consumerfocus.org.uk/publications/missing-the-mark-consumers-energy-bills-annual- statements-and-behaviour-change

Page 128126 of 298 and less engaged consumers were not being reached by prompts and information on bills and annual statements. Whilst Consumer Focus is supportive of Ofgem’s RMR proposals for improving the quality of energy bills and annual statements, we suspect that alternative approaches, such as outreach work, will be needed in order to engage more vulnerable consumers. Consumer Focus also believes there is merit in carrying out a wider review of the information on bills (in the style of a Red Tape Challenge) with the participation of the regulator, suppliers and consumer groups. This review would look at the current regulatory requirements on energy bills and establish whether any of the existing requirements can be safely removed. For example, this could include the removal of the current calorific value calculation which confuses many consumers. Another key factor, which is outside of Ofgem’s direct control, is that once resident in a property, consumers (particularly tenants) have limited control over their energy bills. We want consumers to consider the energy efficiency of a property before signing contracts, whilst recognising that it is highly unlikely to ever be more important than the location and cost of a property. To understand the potential for this we undertook research relating to the Energy Performance Certificate. Our research, Easy as EPC, made a number of recommendations but the simplest was 'money talks'5. Consumers do not understand CO2 or kWh, and so we recommended that EPCs should present running costs more clearly for a property to enable comparison.

To what extent are consumers aware of the different components that make up their energy bills and the relative contribution of each aspect? (e.g. wholesale costs, transmission and distribution charges, environmental/social policies and VAT) We believe there is limited consumer awareness of the different components. The only one of these items that is separately reported by default on consumer bills is VAT. Although distribution and supply businesses are now functionally separate, consumers in focus groups often refer to their electricity as being supplied by the local ‘electricity board’ which may imply they are not aware that distribution and supply are separate. We carried out a survey of consumers’ understand of the Guaranteed Standards regime in January 2012; only 14 per cent of consumers could identified their distribution company and 71 per cent would contact their supplier in the event of an interruption6. Much of the recent and ongoing public debate on the fairness (or not) of retail energy prices has been focussed on the links between wholesale costs and retail prices, so we would expect awareness in this area to be higher than for other cost components.

7 did take place after the Consumer Energy Summit and subsequent Check, Switch and Insulate to Save campaign in October 2011 so this may have had an impact on consumers’ awareness levels:  65 per cent of consumers said they were aware that all consumers pay for subsidised energy efficiency measures  68 per cent of consumers agreed that there should be government subsidies (paid for from taxes) to protect energy consumers from the rising cost of fossil fuels

5 http://www.consumerfocus.org.uk/files/2011/06/Easy-as-EPC-WEB.pdf 6 TNS for Consumer Focus (forthcoming), 2,000 consumers were surveyed between January 11-15th. 7 TNS for Consumer Focus, 1,953 consumers were surveyed between Nov 11-15 2011.

Page 129127 of 298  71 per cent of consumers agreed the Government should reduce green taxes on energy bills  64 per cent of consumers agreed that the Government should require companies to invest more in energy generation from fossil fuels that offer cheaper energy now  82 per cent of consumers agreed that the Government should require companies to invest more in renewable energy generation that means lower energy bills in the long-term

Some suppliers publish a breakdown of the costs that make up an energy bill on each customer bill. We do not have any information about whether consumers pay much attention to this information.

To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this? Consumer Focus is presently undertaking a project within its Who Pays? programme to determine consumers’ awareness of levies for renewable electricity (the RO and FIT), energy efficiency (CERT and CESP) and social redistribution (Warm Home Discount). The research consists of day long deliberative workshops in England, Wales and Scotland. Over the course of the day consumers are also shown DECC’s projections for the change in energy bills through proposed policy and projected movement in global fossil fuel markets. The results are expected to be published in Summer 2012. The early results suggests that there is low awareness of the value of levies on energy bills, a degree of surprise that the costs of support for renewable, social tariffs and energy efficiency is as low as it is and frustration that these costs are not borne by shareholders.

What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary? Research suggests that almost all consumers are now aware that they have the ability to switch supplier and very few consumers are unable to switch (a recent Consumer Focus survey found that 2 per cent of consumers had not switched because they were prevented from doing so by a clause in their rental contract or because they had a meter that could not be supported by other suppliers.)8 The same survey found that 68 per cent of consumers who had never switched cited the reason as being because they were happy with their current supplier. Ofgem’s RMR research had similar findings9.

10. Complex and confusing tariffs are another factor in preventing consumers from engaging with the market, again because consumers have difficulty choosing the best deal for them. In addition, many households may not switch supplier because they have limited time available for dealing with all consumer issues.11 A further reason may be the lack of choice available. If a consumer is unable or unwilling to pay by Direct Debit this drastically reduces the range and variety of tariffs available. It also significantly reduces the savings that can be made. For example, out of the 283

8 Omnibus survey of 3931 people carried out on October 2011 by TNS-RI 9 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/IpsosMori_switching_omnibus_2011.pdf 10 See http://bit.ly/zmZf1i and http://bit.ly/xD5Iot and http://bit.ly/AxLi30 and http://bit.ly/yOaXcb 11 Consumers spend an average of 3.2 hours a week on all consumer tasks, including grocery shopping. See page 11 in http://bit.ly/xKSh8w

Page 130128 of 298 fixed, capped or discounted tariffs released by suppliers between 1 January 2009 to present, 100 per cent were available to Direct Debit customers, 38 per cent to people paying by quarterly cash/cheque (ie pay on receipt of bill) and 3.2 per cent to prepayment meter consumers. There was wide variation amongst suppliers, with some suppliers only offering such tariffs to their Direct Debit customers12. Whilst a lot of attention has naturally been given to the savings available as the prime motivation for switching (in our latest survey 90 per cent of consumers switched in order to save money13), there has been little exploration of other factors that consumers value eg good customer service, ability to retain their preferred payment method, loyalty bonuses and discounts etc. For example a consumer could save over £100 by switching to a direct debit tariff but if they are fearful of missing a payment and incurring bank charges then the available savings begin to look much less attractive. It is unclear what impact Ofgem’s proposals to ban all discounts and options on standard tariffs would have on the market and consumer engagement levels. There could be significant unintended consequences. As above, there are no guarantees that suppliers will offer a range of choices in the non standard tariff market to consumers not paying by Direct Debit. Furthermore, there are no guarantees that there will be a sustained increase in consumer engagement. Smart meters We further believe that the RMR proposals give insufficient consideration to the impact of the rollout of smart metering and Green Deal on switching. Rollout will facilitate an increase in new demand response tariffs (DECC estimates an additional 1 in 5 consumers going on to these deals before 2019) such as multiple rate time of use tariffs, critical peak pricing, automation and load limiting. We expect to see a rise in longer-term contracts and more bundled deals, as in the telecoms market, as new deals become available that combine energy supply with other products and services eg electricity/gas supply plus an in-home display, remote appliance control or energy efficiency measures. Innovation in products has the potential to drive interest in the energy market and promote switching, but only if consumers can easily compare new deals on a like for like basis. Any proposals introduced by the regulator need to be future proofed or else they risk quickly being out of date or not meeting the needs of consumers in our changing energy market. The early rollout of advanced smart meters may also create additional barriers to consumer switching, especially for those households using prepayment meters. Full interoperability of smart meters is not expected to be in place until 2014 at the earliest, when the Data Communications Company (DCC) is expected to be up and running. Ahead of that time there may be several million meters on the walls depending on the speed of rollout and Government decisions in the next few months. Having a smart meter does not affect a consumer’s right to switch and energy companies are not allowed to refuse to supply a domestic consumer. However, current technical issues may mean that if consumers have an early smart meter and want to switch energy supplier, their smart meter may not keep its full smart functionality (for example, they may go back to getting estimated bills), or in some cases they may need to have the smart meter replaced with a standard meter.

If a smart meter prepayment meter consumer wants to switch to another supplier (pre DCC), the current situation is that they will need to have their meter replaced in order to carry on using the prepay facility. The meter replacement should be carried out at no

12 http://www.consumerfocus.org.uk/files/2009/06/Consumer-Focus-response-to-Ofgem-Retail-Market- Review-February-resubmitted-version.pdf 13 Omnibus survey of 3931 people carried out on October 2011 by TNS-RI

Page 129131 of 298 charge to the consumer. However, it is unclear if the hassle of having a meter exchange may deter some consumers from switching supplier after they have had a smart meter installed. Collective switching Consumer Focus believes that collective switching initiatives may represent an opportunity to increase consumer engagement. We have initiated a dialogue with a service – iChoosr – that has successfully developed and rolled out a collective switching model in Belgium, Netherlands and Germany. It offers a platform that sits behind trusted community and civil society organisations as well as local authorities who act as the consumer-facing element of the service to tackle lack of trust and therefore engagement in the market. Consumer Focus has facilitated a meeting between iChoosr and a range of GB organisations and local authorities interested in rolling out this model. We are also looking to engage with other organisations interested in developing a collective switching initiative.

Will Ofgem’s proposals (including on standard tariffs and greater transparency of information published by energy companies) help to increase public trust in energy companies? It is unclear whether the Ofgem core proposal and greater transparency of information will increase consumer trust in the industry. Consumer Focus welcomes the high profile initiatives launched by individual suppliers (E.ON Project Reset, British Gas Honest Conversation, SSE Rebuilding Trust and Ebico’s Great Expectations Charter) to review their current business practices in order to seek to regain the trust of their customers. British Gas and SSE’s reviews, in particular, have already resulted in these companies reducing tariff proliferation and introducing tariff simplification.

Out of the package of measures proposed by Ofgem, Consumer Focus supports the introduction of a new tariff label, price comparison label, changes to non standard tariffs and improvements to energy bills and annual statements. However, we believe further research and a more detailed impact assessment is necessary prior to Ofgem pressing ahead with the implementation of the full package of measures. Our initial concerns about the implications of, and potential impact associated with, the introduction of the restrictions on the standard evergreen tariff and Ofgem-set standing charge have not been addressed14.

We regret that Ofgem did not fully test alternative models during the research phase, given stakeholders’ responses to the initial consultation. Consumer Focus continues to believe there are significant risks associated with the core proposal, not least the potential for unintended consequences. We think that too many assumptions are made in the consultation about how consumers (and suppliers) are likely to react to the proposed changes. We are not convinced by the evidence that Ofgem presented that improving comparability in the standard market, in the manner proposed, will drive consumer engagement. Furthermore, there is a serious risk that the proposals could further entrench the divisions between passive and engaged consumers and the standard and non standard tariff markets. It is also a leap of faith to assume that the non standard tariff market will provide a wide range of choices for consumers not paying by Direct Debit. It hasn’t to date.

Consumer Focus believes there are alternative options that could provide a similar or equivalent level of consumer benefit; through increased understanding of energy bills and usage, as well as an increase in engagement levels, but be delivered with less

14 http://www.consumerfocus.org.uk/files/2009/06/Consumer-Focus-response-to-Ofgem-Retail-Market- Review-February-resubmitted-version.pdf

Page 130132 of 298 complexity, at a lower cost, allow more scope for innovation and consumer choice and have continued relevance in the years to come eg following the smart meter roll out, launch of the Green Deal, etc.

It is also unclear whether Ofgem’s core proposal would result in a significant increase in consumer engagement levels. The regulator’s own research15 highlights that tariff proliferation is often core to consumers’ reluctance to engage with the market. However, Ofgem has not proposed any restrictions that would lead to a reduction in numbers, such as limiting the number of tariffs available in the non standard market, requiring suppliers to justify the introduction of new tariffs or exploring the impact of SLC 25A on tariff proliferation. We accept that this is a difficult policy as different groups of consumers’ value different options but further work is needed in this area.

To what extent are consumers aware of policies such as the Green Deal, smart meter roll out and Ofgem’s Retail Market Reform that could affect the way they use energy in their homes and their engagement in the market? And what are their perceptions of the schemes? Green Deal Consumer Focus has not researched consumer awareness of the Green Deal as this is not cause for significant concern. Firstly, the market framework is not yet in place and there is no certainty as to when the first products and services will come online. No-one should expect consumers to take time to understand a product or service that does not exist. Secondly, market research shown to Consumer Focus shows that naming a product or service ‘Green Deal’ is unlikely to attract consumers. We think that Green Deal finance and accreditation are helpful but are only enablers to the wider energy efficiency market. We expect providers to name their products and services in a way that appeals to their target consumer segments, some may use the Green Deal in their branding but many will only use Green Deal as required by the framework regulations to signal accreditation of advice, installation and finance services. We are more concerned about consumers’ lack of motivation to install energy efficiency measures, and the ability of tenants to protect themselves from rising energy prices. In November we surveyed 1,127 consumers and found that only 32 per cent would be interested in getting energy efficiency advice. There are multiple reasons for consumers not wanting to get advice, including barriers that relate to knowledge or awareness; lack of motivation; and physical or legal barriers:

Q. Why are you not interested in getting advice on saving energy? Base: All not interested or are unsure about getting advice on saving energy (Nov 2011; weighted base: 722) I have done all I can to insulate my home and cut my energy bills 40% I rent my home and do not have the power to make any changes such as installing insulation 20% Too much hassle to have work done 8%

15 See http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/Tariff_Comparability_Qualitative_Researc h.pdf and http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/Tariff_Comparability_Quantitative_Resea rch.pdf and http://www.ofgem.gov.uk/Sustainability/Cp/CF/Documents1/Ofgem%20Consumer%20First%20Panel% 20Year%204.pdf

Page 133131 of 298 Too expensive 8% I do not see the need to save energy 5% I'm planning on moving house soon 4% I\we can do my\our own research\I\we can look into it myself\ourselves 2% Am sceptical about it\think it's a con\don't trust them\don't know who to trust 2% I\we know about this\I\we know everything (already) 1% I'm a leaseholder and the freeholder will not allow the installation of insulation or other energy saving measures 1% DIY\I\we can\will do this work myself\ourselves 1% I\we can do this ourselves (unspecified) 1% I have already had advice\been advised before 1% Too old 1% Not interested 0% Another reason 3% Don't know 8%

Smart meters In Consumer Focus’s March 2010 online survey (base 2,048 consumers) 68 per cent of respondents said that they were aware of smart meters. Out of this 68 per cent, a notably lower proportion were aware of what a smart meter could actually do. For example only 47 per cent believed they would allow a meter to be read remotely and 14 per cent of respondents said that they did not know anything about the meters. There was also evidence that consumers were confusing having a clip-on energy display with having a smart meter. In Consumer Focus’s May 2011 face to face survey (base 1,374 consumers) 50 per cent said they were either very or quite interested in having a smart meter with a display installed in their home, 26 per cent were not sure, and 24 percent were not interested or not very interested. When asked why they did not want a smart meter, more than half of consumers felt they had no need for one, and about a quarter were worried about the cost. There were a number of other reasons listed.

We are carrying out a survey on consumer awareness of and interest in smart metering in March 2012 and would be happy to share the findings with the ECC committee.

In addition to data from consumer surveys, Consumer Focus also monitors calls to the frontline advice agency, Consumer Direct. Although current contacts about smart meters are not high enough to be statistically significant, the experiences relayed by consumers do provide some indications of growing awareness of smart metering. As expected, for this kind of service, most of the contacts are about complaints. The key issues are around consumers continuing to get estimated bills after a smart meter has been installed, barriers to switching and concerns about rising costs. There have also been a number of enquiries, notably questions asking why consumers are getting smart meters and asking if they have to have one.

What are the potential implications of a lack of consumer awareness in these areas? We think there is a significant risk that implementation of Ofgem’s core proposal will not deliver increased engagement levels. This is likely to have an impact on the take up of the Green Deal.

Page 134132 of 298 In terms of smart metering, lack of consumer awareness and engagement would have a significant impact on the success of rollout and the energy costs that consumers pay. For example, if there are barriers to entry to install a smart meter, this will result in increased costs for suppliers from abandoned visits, which will be passed on to households. If significant numbers of consumers reject smart meters there will be a need to run parallel industry processes. This will either result in increased costs for those individual consumers who continue to have a dumb meter, or lead to rising costs for all, if the cost of this is shared across the whole customer base.

The vast majority of monetised consumer benefits identified in the DECC Smart Metering Impact Assessment (£4.60bn out of £4.64bn) are expected to come from consumers being able to use up to date information on their gas and electricity consumption to reduce their energy use and save money on their energy bills. If this does not happen, then the business case for rollout is considerably weakened and consumers will end up worse off. It is important therefore that consumers are not only ‘aware of’ smart meters, but willing and able to actively engage with this new technology.

Smart meters are also intended to facilitate the introduction of new demand response tariffs, which could reduce costs by both shifting load at peak times and reducing overall energy consumption. If consumers do not engage with and take up new tariffs, these benefits will not be realised. Evidence suggests that there is real potential to deliver energy savings through smart, but this will be dependent on the engagement strategy.

Is greater consumer education needed and if so, who should take responsibility for this, who should deliver it and how should it be delivered? In such an essential service, which is already complex and can be very confusing, consumers need to know who to turn to for trustworthy advice, including what to do if things go wrong and they want to pursue a complaint.

In October 2011 Consumer Focus published ‘making the connection: strengthening the advice, complaint handling and redress framework’16. This report considers the current plethora of organisations involved in providing information, help, support and advice to energy consumers, and makes recommendations for strengthening, streamlining and simplifying the consumer education and advice in the future.

We will be carrying out further programme of work in 2012-13 exploring the themes identified in the report and aimed at delivering more joined up initiatives for energy consumers. Energy consumer redress arrangements Throughout 2009/10 Consumer Focus carried out a number of half day events for advice providers and frontline staff across Great Britain. These events were primarily to build relationships, promote the consumer education, empowerment and information tools that we provide.

16 http://www.consumerfocus.org.uk/files/2011/10/Making-the-connection.pdf

Page 135133 of 298 There was also limited knowledge about the respective roles and remits of Consumer Direct, Consumer Focus (our function in relation to supporting vulnerable consumers via the Extra Help Unit) and the Energy Ombudsman. Given the imminent changes to the redress arrangements for energy consumers, it is important that all the bodies involved work closely together with appropriate public and voluntary sector organisations to ensure consumers are able to access help and support if they have a problem with their energy supplier. Smart meters Consumer Focus has strongly advocated for either Government or an independent body/organisation to have responsibility for the development and delivery of a consumer engagement strategy for smart metering. We view this as essential to deliver the consumer benefits identified in the business case. This engagement strategy would run alongside and help to coordinate supplier activity. Central activity is needed to provide:  Clear, credible and consistent messaging  Trial and showcase best practice  Create a smart metering brand and facilitate joint branding to help develop trust and engage consumers in this £11bn programme  Mobilise local community networks and organisations  Provide a single point of contact for third parties to engage with the programme rather than having to deal with multiple suppliers  Provide independent advice and information especially on issues of concern and on energy efficiency. Consumer Focus’s March 2010 survey (base 2,000) reported that only 23 percent of gas consumers and 26 percent of electricity consumers trust their supplier to give help and advice on cutting their energy bills and going green  Develop an extra help scheme for low income and vulnerable consumers to ensure that all households can access the benefits of smart metering

We believe that the benefits of such an approach could far outweigh the costs.

What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies? Early results from our Who Pays? project suggests that consumers believe they are already paying too much in taxes and too much in bills. There is significant resistance to further rises in either. That said there is support for investment in renewable energy and a degree of support for the socialisation in support for energy efficiency as has been the case with CERT and CESP. The advantage of using levies on energy bills was that if levied on the amount of energy used it incentivises energy reduction and is also fair – in the polluter pays sense of the terms. Most environmental levies, for example, the EU ETS, Renewable Obligation and Feed In Tariff, are levied according to the level of consumption. However, suppliers recover CERT and CESP by a flat rate per household, regardless of consumption levels. This is because the Government sets targets according to the number of consumers each supplier has. Fuel poverty organisations, such as the Government’s Fuel Poverty Advisory Group (FPAG), argue that suppliers should recover ECO costs on the basis of consumption, as is the case for other environmental levies. This would require the

Page 134136 of 298 Government to set targets on the basis of consumption, rather than consumer numbers (ECO will replace CERT and CESP in 2013). Consumer Focus evidence shows that the change proposed would also have a progressive impact on consumers, in that there is a strong relationship between income and consumption. However, there is a small minority of low income consumers with high consumption, for example due to medical needs, who would lose out under such a switch. Targeted help at these groups of consumers could help reduce the impact of the change. The Who Pays? project found that many consumers supported the idea of rising block tariffs when shown the structure used in California. Rising block tariffs require suppliers to increase the whole tariff rate (not just the environmental levy part) as consumption rises. Regulators would need to intervene in the market to set the tariff blocks which all suppliers would have to observe. Consumers were conscious that certain classes of vulnerable consumers could unfairly lose out from charges levied according to consumption, or rising blocks, for instance households with infants or frail people that have to heat their homes more hours than average. There was little support for charges being levied on a per house basis, suggesting consumer support for the reform proposed by FPAG. Consumers were puzzled to discover their bills were being used to finance explicit cross subsidies such as the Warm Home Discount (WHD). In this scheme eligible consumers receive a £120 per household reduction in their electricity bill funded by a £10 per household levy on electricity. Since only 2 million households of the 6.4 million fuel poor households are eligible for the WHD, a large number of fuel poor households are cross- subsidising eligible households who may or may not be fuel poor. This strikes consumers as unfair. Their specific worries were about the eligibility criteria that energy companies would use, and they had little confidence that the money would be well targeted.

Recommendations  Ofgem to carry out further research on its RMR core proposals and produce a more detailed impact assessment  Government to ensure delivery of better joined up advice, information and redress for energy consumers – it must be simple and accessible to all  Ensure that new joined up tools are introduced to help consumers better understand their energy usage, reduce their energy bills, help them shop around for a better tariff and encourage take up of energy efficiency measures eg link together the EPC database, the comparative consumption database under development by the ERA, an independent price comparison service for tariffs and, going forwards, the Green Deal  The Government should, or nominate an independent body to, develop and deliver a consumer engagement strategy for the smart meter roll out  Consumer groups, industry, regulator and Government to work together to develop a shared narrative to prepare consumers for the costs associated with decarbonising the economy and ensuring security of supply March 2012

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Further written evidence submitted by Consumer Focus (CE 20a)

About Consumer Focus Consumer Focus is a statutory consumer group established by the 2007 Consumers, Estate Agents and Redress Consumer Focus is the statutory consumer champion for England, Wales, Scotland and (for postal consumers) Northern Ireland.

We operate across the whole of the economy, persuading businesses, public services and policy makers to put consumers at the heart of what they do.

Consumer Focus tackles the issues that matter to consumers, and aims to give people a stronger voice. We don’t just draw attention to problems – we work with consumers and with a range of organisations to champion creative solutions that make a difference to consumers’ lives.

1. Executive Summary 2. Evidence shows that consumer engagement in the domestic energy market is low; Consumer Focus research shows people don’t understand their bills and find tariffs confusing.

3. Since Ofgem announced the launch of its Retail Market Review (RMR) in November 2010, there have been a number of welcome moves by some suppliers to simplify their tariff structures and tariff offerings, as well as improving the content, the look and feel of their bills, and annual statements.

4. However, it is clear that not all suppliers have accepted the need for significant change to the status quo. Ofgem’s publication of the final RMR proposals must tackle the problems of low consumer engagement levels and deliver simplified tariffs and supplier communications including bills and annual statements.

5. It is important that companies gain consumer trust. However, there are key issues about consumer awareness and clarity of information that must be addressed across the market. Most consumers do not know who their distribution company is, or how their bills are calculated, nor do they have an accurate picture of how their bills will be affected by current government energy policy in the future. In Consumer Focus research due in the autumn, people tend to overestimate how much social and ‘green’ levies will add to their bills, yet their willingness to pay for new low-carbon generation is more open than might be expected, once the costs are clearly demonstrated and explained. This demonstrates the need and effectiveness of greater consumer engagement and information.

6. We believe that the low levels of consumer engagement and trust in the market pose a major challenge to forthcoming Government programmes including the launch of the Green Deal and the smart meter roll out. 7. These two policies form the bulk of future engagement with energy consumers. While there are potential benefits for consumers, Consumer Focus finds there are numerous challenges for both in their current state. 8. Regarding, smart meters, we have concerns over their future proofing, the lack of interoperability pre-2014 and consumer safeguards, as well as a very low level of knowledge currently felt by consumers. 9. Consumer Focus strongly advocates for either government, or an independent body/organisation, to have responsibility for the development and delivery of a consumer engagement strategy for smart metering. Given the cost of this programme,

Page 136138 of 298 which intends to transform consumers’ relationship to the energy market and to their own energy consumption, it would be a false economy to skimp on that element of the programme that might make that transformation a reality. The success of the smart metering programmer relies on consumer engagement and response. Undervalue the importance of that engagement and not having a focus on achieving that level of engagement will be a fatal flaw in the programme. 10. The Green Deal also faces a challenge to engage and motivate consumers to take action. In particular, we think the Green Deal will not significantly change many of the legal, physical or monetary issues that we have highlighted as barriers to home efficiency in our previous research. These two policies are at the heart of the Government’s energy policy, they are crucial for the UK to achieve its carbon savings, yet we feel they both need significant improvements.

11. Recommendations 12. Ofgem’s Retail Market Review must deliver improvements in tariff comparability, reduce tariff complexity and introduce improved bills and annual statements 13. There needs to be a development of tariff options for low income and vulnerable consumers, recognising the market’s failure to engage with this section of consumers and giving them protections against this. 14. There should be a concerted effort by government, industry and consumer groups for better joined up advice, information and redress to energy consumers that covers all aspects of the energy market– it must be simple and accessible to all 15. There is a need to develop and deliver an independent and dedicated consumer engagement strategy for the smart meter roll out. This must include the development of an extra help scheme for vulnerable consumers. 16. The costs associated with decarbonising the economy and ensuring security of supply must be better explained to consumers, with a non-partisan, fact-based shared narrative to prepare consumers for the future.

17. How “energy literate” are consumers in the UK? For example, are most consumers aware of how much their bills vary according to usage? Are terms such as “kWh” understood by most consumers? 18. Over the last few years extensive research has been carried out on consumer attitudes to energy bills by organisations including Consumer Focus, Which?, Uswitch, the EU Citizens Energy Forum and Ofgem. Much of this research has been focused on issues such as language, the layout of energy bills and annual statements and consumers’ understanding of terms such as kilowatt hours (kWh), calorific value, etc. The conclusions are broadly similar; many consumers are confused by their energy bills, distrustful of information provided and unsure how to use the information on their bills to carry out an accurate price comparison. 19. Our June 2011 report “Missing the Mark – consumers, energy bills, annual statements and behaviour change”1 assessed the extent of consumers’ understanding and engagement with information from their energy suppliers as well as the success of new information remedies. The research found that certain groups of consumers are more likely to react to information on bills or Annual Statements than others. In particular vulnerable and less engaged consumers were not being reached by behavioural prompts and information on bills and annual statements such as companies offering cheaper tariff and consumption help.

1 http://www.consumerfocus.org.uk/publications/missing-the-mark-consumers-energy-bills-annual- statements-and-behaviour-change

Page 137139 of 298 20. In addition, many consumers find it difficult to understand how their household energy use translates into the amount owed on their energy bills2. 21. We agree with Ofgem that the language used by suppliers in their bills, annual statements and customer communications is too complex and often not sufficiently comparable.3 22. Consumer Focus, together with Which?, Citizens Advice and Energy UK, has encouraged Ofgem to launch a wider review of the information on energy bills and supplier communications (in the style of a Red Tape Challenge) alongside its RMR policy development. This review is looking at the current regulatory requirements and seeking to establish whether any of the existing requirements can be removed in order to simplify bills and other supplier communications e.g. calorific value and we expect it to deliver positive changes in this area. 23. It is unclear, however, whether the changes under the RMR will be enough to address another issue affecting consumers’ willingness to engage in the energy market (with greater engagement needed in a raft of government policy aspirations, such as, but not limited to, the Green Deal, switching and smart meters) which is their lack of trust in the energy industry. Focus group research carried out by Ipsos Mori for Consumer Focus in October 20104 revealed huge levels of distrust in the energy industry which colours consumers' views of their energy bills and other communications from their suppliers. The perception of value for money is key to consumers’ perceptions of the industry. Energy prices have continued to rise at a time while most household incomes have stagnated or decreased. 24. Another factor, which is outside of Ofgem’s direct control, is that once resident in a property, consumers (particularly tenants) have limited control over their energy bills. We want consumers to consider the energy efficiency of a property before signing contracts, whilst recognising that it is highly unlikely to ever be more important than the location and cost of a property. To understand the potential for this we undertook research relating to the Energy Performance Certificate. Our research, Easy as EPC, made a number of recommendations but the simplest was 'money talks'5. Consumers do not understand CO2 or kWh, and so we recommended that EPCs should present running costs more clearly for a property to enable comparison.

25. To what extent are consumers aware of the different components that make up their energy bills and the relative contribution of each aspect? (e.g. wholesale costs, transmission and distribution charges, environmental/social policies and VAT) 26. We believe there is limited consumer awareness of the different components. The only one of these items that is separately reported by default on consumer bills is VAT. Some suppliers publish a breakdown of the costs that make up an energy bill on each customer bill. We do not have any research to demonstrate whether consumers pay much attention to this information. 27. Although distribution and supply businesses are now functionally separate, consumers in focus groups often refer to their electricity as being supplied by the local ‘electricity board’ which may imply they are not aware that distribution and supply are separate. We carried out a survey of consumers’ understanding of the Guaranteed Standards regime in January 2012; only 14 per cent of consumers could identify their

2 See http://www.consumerfocus.org.uk/publications/missing-the-mark-consumers-energy-bills-annual- statements-and-behaviour-change and http://www.consumerfocus.org.uk/files/2011/03/Informing-choices.pdf 3 See http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/Lawes_Language_Report.pdf 4 http://www.consumerfocus.org.uk/publications/informing-choices-consumer-views-of-energy-bills 5 http://www.consumerfocus.org.uk/files/2011/06/Easy-as-EPC-WEB.pdf

Page 138140 of 298 distribution company and 71 per cent would contact their supplier in the event of a supply interruption6. Much of the recent and ongoing public debate on the fairness (or not) of retail energy prices has been focussed on the links between wholesale costs and retail prices, so we would expect awareness in this area to be higher than for other cost components. 28. Only one of the Big 6 suppliers, British Gas, reports the results of its retail business separately from its other businesses. We calculate that the pre-tax profitability of the Big 6 energy companies UK businesses increased by 36% from £6.7bn in 2008 to £9.1bn in 20117. Suppliers price rise announcements have tended to point at movements in wholesale prices and increased environmental spend as driving factors without acknowledging that these trends benefit their upstream businesses. Presenting the facts in such a skewed manner is likely to have a deleterious effect on the already low level of trust that consumers have in the sector. Consumer are understandably confused when they hear claims from the companies that they make little money, or a loss, on selling energy at the same time that they announce (very) significant profits. Ofgem and the Government must make more efforts in increasing the transparency of energy firm’s profits, to ensure greater consumer trust in the market. 29. Consumer Focus carried out an omnibus survey8 in November 2011, after the Consumer Energy Summit and the Check, Switch and Insulate to Save campaign in October: 30. 65 per cent of consumers said they were aware that all consumers pay for subsidised energy efficiency measures

32. 71 per cent of consumers agreed the Government should reduce green taxes on energy bills 33. 64 per cent of consumers agreed that the Government should require companies to invest more in energy generation from fossil fuels that offer cheaper energy now 34. 82 per cent of consumers agreed that the Government should require companies to invest more in renewable energy generation that means lower energy bills in the long- term

35. To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this? 36. Consumer Focus is presently undertaking a project within its Who Pays? programme to determine consumers’ awareness of levies for renewable electricity (the RO and FIT), energy efficiency (CERT and CESP) and social redistribution (Warm Home Discount). The research consists of day long deliberative workshops in England, Wales and Scotland. Over the course of the day consumers are also shown DECC’s projections for the change in energy bills through proposed policy and projected movement in global fossil fuel markets. The results are expected to be published in autumn 2012. 37. The early results suggests that there is low awareness of the monetary value of levies within energy bills and a degree of surprise at the predicted costs of support for renewable, social tariffs and energy efficiency is as low as it is given media reporting of the issue. In addition, there is a general acceptance, and indeed willingness to pay

6 TNS for Consumer Focus (forthcoming), 2,000 consumers were surveyed between January 11-15th. 7 [Need to upload revised tables & insert hyperlink – RH to action] 8 TNS for Consumer Focus, 1,953 consumers were surveyed between Nov 11-15 2011.

Page 141139 of 298 for levies when presented to people alongside the social and environmental benefits they will deliver yet this there is a frustration that these costs are not borne by shareholders. 38. In terms of funding new low-carbon generation, the form of technology is important, with Consumers showing significant support for paying a premium for low carbon generation. However, this support rises dramatically if the low carbon generation excludes nuclear, which is another area of surprise to consumers when given information of previous nuclear subsidies as well as the ongoing decommissioning costs. The full findings of these studies will be published in the autumn.

39. What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary? 40. Research suggests that almost all consumers are now aware that they have the ability to switch supplier and very few consumers are unable to switch (a recent Consumer Focus survey found that 2 per cent of consumers had not switched because they were prevented from doing so by a clause in their rental contract or because they had a non standard meter that could not be supported by other suppliers.)9 The same survey found that 68 per cent of consumers who had never switched cited the reason as being because they were happy with their current supplier. Ofgem’s RMR research had similar findings10. 41. We believe there are a number of reasons why consumers have limited interest in switching supplier. Tariff proliferation and the inability to choose from a huge array of options is often cited as a key factor11. Complex and confusing tariffs are another factor in preventing consumers from engaging with the market, again because consumers have difficulty choosing the best deal for them. In addition, many households may not switch supplier because they have limited time available for dealing with all consumer issues.12 42. A further reason may be the lack of choice available. If a consumer is unable or unwilling to pay by Direct Debit or pay on-line this drastically reduces the range and variety of tariffs available. It also significantly reduces the savings that can be made. For example, out of the 283 fixed, capped or discounted tariffs released by suppliers between 1 January 2009 to February 2012, 100 per cent were available to Direct Debit customers, 38 per cent to people paying by quarterly cash/cheque (i.e. pay on receipt of bill) and 3.2 per cent to prepayment meter consumers. 43. There was wide variation amongst suppliers, with some suppliers only offering such tariffs to their Direct Debit customers13. Suppliers have not developed low cost tariffs, other than prepayment meters, that make it easier for low income consumers to pay their bills and take into account their typical budgeting arrangements. 44. Many low income households are wary of existing direct debit arrangements as the potential savings from switching to a direct debit payment (circa £100) may not actually materialise if the consumer subsequently misses a payment and/or incurs bank charges.

9 Omnibus survey of 3931 people carried out on October 2011 by TNS-RI 10 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/IpsosMori_switching_omnibus_2011.pdf 11 See and http://bit.ly/xD5Iot and http://bit.ly/AxLi30 and http://bit.ly/yOaXcb 12 Consumers spend an average of 3.2 hours a week on all consumer tasks, including grocery shopping. See page 11 in http://bit.ly/xKSh8w 13 http://www.consumerfocus.org.uk/files/2009/06/Consumer-Focus-response-to-Ofgem-Retail-Market- Review-February-resubmitted-version.pdf

Page 142140 of 298 45. Consumer Focus has lobbied for the introduction of new jam jar bank accounts, which would help low income households budget more effectively and enable them to access to lower cost Direct Debit tariffs. Similarly, we are disappointed that previous Governments did not improve and modernise the Fuel Direct payment mechanism which could potentially have provided a low cost payment facility for consumers on benefits who need that additional support. We urge the Government to address these two areas in its welfare reform proposals. 46. Whilst Consumer Focus is supportive of Ofgem’s RMR goal of improving the quality of energy bills and annual statements to increase engagement levels, we suspect that alternative approaches, such as ongoing outreach work, such as a widespread campaign on how to save and use energy in their home, will also be needed in order to engage more vulnerable consumers. Furthermore, we are not convinced that the RMR proposals will address the long term problem that a substantial section of low income and vulnerable consumers are not engaging with the market. 47. A major reason for this is that suppliers are not competing for their custom by offering low cost tariffs that meet their needs. Further work is needed to put forward costed options, such as social tariffs, ‘backstop tariffs’ or low cost tariff for initial block of consumption, for addressing this structural market failure. 48. Early exit penalties may discourage consumer switching, and we welcome the decision by two major suppliers, EDF Energy and Scottish Power, to launch relatively competitive tariffs that feature no exit penalties. We would like to see other suppliers follow this lead. 49. Smart meters 50. We further believe that the RMR proposals give insufficient consideration to the impact of smart metering and Green Deal on switching. Smart metering rollout is expected to facilitate an increase in new demand response tariffs (DECC estimates an additional 1 in 5 consumers going on to these deals before 2019) such as multiple rate time of use tariffs, critical peak pricing, automation and load limiting. 51. We expect to see a rise in longer-term contracts and more bundled deals, as is common in the telecoms market, as new deals become available that combine energy supply with other products and services e.g. electricity/gas supply plus an in-home display, remote appliance control or energy efficiency measures. Innovation in products has the potential to drive interest in the energy market and promote switching, but only if consumers can easily compare new deals on a like for like basis. Any proposals introduced by the regulator need to be future proofed or else they risk quickly being out of date or not meeting the needs of consumers in our changing energy market. 52. The early rollout of advanced smart meters may also create additional barriers to consumer switching, especially for those households using prepayment meters. Full interoperability of smart meters is not expected to be in place until 2014 at the earliest, when the Data Communications Company (DCC) is expected to be up and running. 53. DECC estimates that up to 6.1million meters could be installed before this time, depending on the speed of rollout and Government decisions in the next few months. Having a smart meter does not affect a consumer’s right to switch and energy companies are not allowed to refuse to supply a domestic consumer. 54. However, current technical barriers and different supplier practices are likely to mean that if consumers have an early smart meter and want to switch energy supplier, their smart meter may not keep its full smart functionality (for example, they may go back

Page 141143 of 298 to getting estimated bills), or in some cases they may need to have the smart meter replaced with a standard meter. 55. If a prepayment meter consumer who has had a smart meter installed wants to switch to another supplier (pre DCC), the current situation is that they will need to have their meter replaced in order to carry on using the prepay facility. The meter replacement should be carried out at no charge to the consumer. However, it is unclear if the hassle of having a meter exchange may deter some consumers from switching supplier after they have had a smart meter installed or deter consumers from having a smart meter in the first place. New protections will come into force in the next few months. These will require suppliers to inform consumers of any disadvantages they may face on change of supplier if they have an advanced/smart meter. The safeguards do not fully resolve these problems and it is unclear what impact this will have on switching. 56. Collective switching 57. Consumer Focus believes that collective switching initiatives may represent an opportunity to increase consumer engagement. We have initiated a dialogue with a service – iChoosr – that has successfully developed and rolled out a collective switching model in Belgium, Netherlands and Germany. It offers a platform that sits behind trusted community and civil society organisations as well as local authorities who act as the consumer-facing element of the service to tackle lack of trust and therefore engagement in the market. Consumer Focus has facilitated a meeting between iChoosr and a range of GB organisations and local authorities interested in rolling out this model. We are also engaging with other organisations interested in developing a collective switching initiative such as the recently launched Cornwall Together initiative and with Which? and The Peoples Power. However, for more organisations to move into this market, Ofgem needs to issue clear guidance to suppliers how than could engage without breaching existing discriminational licence conditions,

58. Will Ofgem’s proposals (including on standard tariffs and greater transparency of information published by energy companies) help to increase public trust in energy companies? 59. It appears as if Ofgem has stepped back from its original RMR proposals on standard tariffs14. Consumer Focus believe this is the right approach as we felt that further research and consumer testing was needed to understand whether the original proposals would deliver the desired outcomes.15

60. Out of the original package of measures proposed by Ofgem, Consumer Focus continues supports the introduction of: 61. a new tariff label 62. tariff comparison rate, 63. changes to non standard tariffs 64. improvements to energy bills and annual statements 65. standardised discount structures

66. Consumer Focus has also welcomed the high profile initiatives launched by individual suppliers (E.ON Project Reset, British Gas Honest Conversation, SSE Rebuilding Trust, EDF Energy’s Customer Commitments and Ebico’s Great Expectations Charter) to review their current business practices in order to seek to regain the trust

14 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/RMR%20next%20steps%20 - %20Open%20letter.pdf 15 http://www.consumerfocus.org.uk/files/2009/06/Consumer-Focus-response-to-Ofgem-Retail-Market- Review-February-resubmitted-version.pdf

Page 142144 of 298 of their customers. This has included the recent moves by four of the Big Six (British Gas, EDF Energy, E.ON and SSE) to move towards a single tariff structure that includes an annual standing charge and single unit rate (for non time of use tariffs). These four suppliers have also reduced or announced plans to streamline the number of tariff offerings.

67. It is unclear at this stage, however, whether these initiatives will be successful in challenging consumers’ perceptions of the value for money provided by suppliers.

68. To what extent are consumers aware of policies such as the Green Deal, smart meter roll out and Ofgem’s Retail Market Reform that could affect the way they use energy in their homes and their engagement in the market? And what are their perceptions of the schemes? 69. Green Deal 70. Consumer Focus has not specifically researched consumer awareness of the Green Deal for a number of reasons. Firstly, consumers cannot be expected to know of or understand a scheme until the market framework is in place and products are being offered on the market place. 71. Moreover, market research shown to Consumer Focus shows that naming a product or service ‘Green Deal’ is unlikely to attract consumers and we expect providers to name and brand their products and services in a way that appeals to their target consumer segments; some may use the Green Deal in their branding but many will only use Green Deal as required by the framework regulations to signal accreditation of advice, installation and finance services. 72. We are more concerned about consumers’ lack of motivation to install energy efficiency measures in general. The Green Deal is a finance and accreditation framework, and as such only goes a small way to addressing the barriers to take-up of energy efficiency measures.

73. In November 2011 we surveyed 1,127 consumers and found that only 32 per cent would be interested in getting energy efficiency advice. There are multiple reasons for consumers not wanting to get advice, including barriers that relate to knowledge or awareness; lack of motivation; and physical or legal barriers; only a small proportion of cases will these be addressed by the Green Deal. The survey found that more consumers thought they had done all they could to make their home energy efficient than actually have in practice, when compared against to national figures on insulation levels.

Page 143145 of 298

Q. Why are you not interested in getting advice on saving energy? Base: All not interested or are unsure about getting advice on saving energy (October 2011; weighted base: 722) I have done all I can to insulate my home and cut my energy bills 40% I rent my home and do not have the power to make any changes such as installing insulation 20% Too much hassle to have work done 8% Too expensive 8% I do not see the need to save energy 5% I'm planning on moving house soon 4% I\we can do my\our own research\I\we can look into it myself\ourselves 2% Am sceptical about it\think it's a con\don't trust them\don't know who to trust 2% I\we know about this\I\we know everything (already) 1% I'm a leaseholder and the freeholder will not allow the installation of insulation or other energy saving measures 1% DIY\I\we can\will do this work myself\ourselves 1% I\we can do this ourselves (unspecified) 1% I have already had advice\been advised before 1% Too old 1% Not interested 0% Another reason 3% Don't know 8%

74. Currently the UK charges VAT on energy saving materials, such as insulation, micro- generation and heat pumps, at the reduced rate of 5%. In June, the European Commission issued an infraction notice against the , telling it that ‘the UK's application of a reduced rate in this area contravenes EU legislation’16. 75. Her Majesty’s Revenue and Customs (HMRC) has agreed that it cannot apply a reduced rate of VAT for energy saving materials installed in buildings used solely for charitable purposes and is consulting on the approach to withdrawing the reduced VAT rate for those purposes, with likely effect from 1 August 2013. HMRC has signalled that it does not agree with, and will contest, the Commission’s view that a reduced VAT rate cannot be applied to energy saving materials sold to domestic consumers.17 76. The outcome of the VAT dispute cannot be forecasted. However, in the event that the UK is unable to sustain the current reduced VAT rate there will be a need to communicate the impact of the decision to consumers. The most obvious example of this is that it may have an impact on the speed with which energy efficiency measures pay for themselves through reduced bills (or, indeed, whether the Golden Rule is met at all in marginal cases).

16http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/676&format=HTML&aged=0&la nguage=EN&guiLanguage=en 17 http://www.hmrc.gov.uk/briefs/vat/brief2612.htm

Page 146144 of 298 77. Smart meters 78. Consumer Focus has carried out a number of surveys looking at customer awareness of an interest in smart meters. In our most recent research (March 2012)18 we found that: 79. Customer awareness: 80. Overall 52% of all respondents said they had heard of smart meters. 7% said they had one installed but it was clear when we questioned further that there was confusion between what was a smart meter, and what was a clip-on energy display. 81. Of those who claimed to know about smart meters most struggled to identify benefits when probed. 82. Generally the older respondents said they were more likely they were to have heard of smart meters. Only 36% of 16-24 year olds had heard of them compared to 66% of 55-65 year olds. 56% of over 65’s had heard of them. 83. The higher the respondent’s social class the more likely they were to have heard of them. 63% of AB’s compared to 38% of DE’s. 84. Respondents who had a PPM meter were least likely to have heard of smart meters (35%) compared to other payment methods.

85. Customer interest in smart meters with displays 86. 44% of consumers said they were interested in having a smart meter with display installed. This compared less favourably with our comparable 2011 survey where 51% were interested19 87. 29% of consumers were not interested (23% in 2011) 88. 28% said they didn’t know 89. Interest decreased with age - highest level of interest was among consumers aged 18-34 (53%) compared to just 27% of over 65s

91. The most common reasons stated for interest in having a smart meter included20: Cheaper bills – 32% See what I’m using – 28% Help me budget/manage energy use – 18% Only 3% of customers said they wanted a smart meter because it would help the environment

92. The potential benefits of smart meters that were most commonly classed as important21 (quite important/very important) were:

18 This was a face-to-face survey carried out by GfK NOP on behalf of Consumer Focus of 1460 UK bill payers between 29th March – 3rd April 2012. The survey looked at consumer attitudes to smart metering and related issues, and covered areas including general awareness of smart meters, interest in new technology, data privacy and access, health issues, appointment times and switching times. 19 2011 survey – face-to face Omnibus. In May 2011 TNS RI carried out an omnibus survey of 1964 adults (1447 who pay the energy bills) across Great Britain on their attitudes to the following: smart meters (including interest in an up-to date account balance) and doorstep selling. 20 We asked “Why are you interested in having a smart meter & display installed in your home?” it was an open question and consumers could give multiple answers. Answers given are by percentage of base (all interested, 581), multiple answers were recorded. 21 Researchers read out a list of potential benefits, and asked consumers to rate their importance

Page 147145 of 298 • Help save money (76%) • Give accurate bills (74%) • Ensure reliable energy supply (65%) • Cheaper and more convenient PPM (49%) • Quicker and easier to switch supplier (47%) • Fewer visits from energy company (52%)

93. In addition to data from consumer surveys, Consumer Focus also analysis and tracks the issues coming from calls to the frontline advice agency, Consumer Direct (now Citizens Advice Consumer Service). Although current contacts about smart meters are not high enough to be statistically significant, the experiences relayed by consumers do provide some indications of growing awareness of smart metering. As expected, for this kind of service, most of the contacts are about complaints. The key issues are around consumers continuing to get estimated bills after a smart meter has been installed, barriers to switching and concerns about rising costs. There have also been a number of enquiries, notably questions asking why consumers are getting smart meters and asking if they have to have one (see attached Annex 1).

94. Potential barriers to consumer engagement

95. We see a number of potential challenges to consumer engagement in smart metering. These include but are not limited to:

• Customer concerns about health risks associated with wireless technologies, data privacy and security and remote disconnection. • Barriers to switching • Poor installation experience e.g. unwelcome marketing during the home visit; multiple home visits required for the system to be installed • Customer proposition not sufficiently attractive e.g. DECC estimates that customers will reduce their energy consumption by on average 0.3-4% a year due to smart metering. By 2020, once the rollout is complete, this means an average dual fuel customer will save just £25 a year on their energy bills. • Smart meters fail to meet customer expectations e.g. households continue to get estimated bills, there is inaccurate cost information on displays and consumers are not able to make savings on their energy bills • Perceived increase in costs due to smart metering

97. What are the potential implications of a lack of consumer awareness in these areas? 98. The lack of awareness of and motivation to install energy efficiency measures, including through the Green Deal and ECO schemes, means that voluntary demand response they are unlikely to make the scale of contribution anticipated to government’s carbon reduction targets. This would mean that more (low carbon) generation will need to be built to meet these targets than would otherwise be the

Page 148146 of 298 case. This would be much less cost effective than demand reduction through energy efficiency. It also means that the Energy Company Obligation will be more costly than otherwise, as suppliers will have to subsidise a larger proportion of the cost to motivate consumers to take up measures. Both these effects will have the result of pushing up energy bills for all consumers in the short, medium and long-term. 99. We want a much clearer long-term target and strategy for the delivery of the government’s carbon reduction objectives. Government must set out a clear vision for the existing housing stock, set targets that give notice to the property market, be prepared to continuously improve the Green Deal framework by learning from problems as they arise, and provide adequate resources to meet its goals. 100. In terms of smart metering, lack of consumer awareness and engagement would have a significant impact on the success of rollout and the energy costs that consumers pay. For example, if there are difficulties for the consumer regarding the installation of a smart meter, this will result in increased costs for suppliers from abandoned visits, which will be passed on to households. If significant numbers of consumers reject smart meters there will be a need to run parallel industry processes. This will either result in increased costs for those individual consumers who continue to have a dumb meter, or lead to rising costs for all, if the cost of this is shared across the whole customer base. DECC’s March 2012 Impact Assessment is based on the assumption that 97% of homes will have smart meters installed. This is a very high level of customer acceptance.

Ninety nine percent of the monetised domestic consumer benefits identified in the DECC Smart Metering Impact Assessment (£4.39bn out of £4.43bn22) are expected to come from consumers being able to use up to date information on their gas and electricity consumption to reduce their energy use and save money on their energy bills. If this does not happen, then the business case for rollout is considerably weakened and consumers could end up worse off. It is important therefore that consumers are not only ‘aware of’ smart meters, but willing and able to actively engage with this new technology. This includes having appropriate heating controls, and being able to use them effectively, which research shows is often not the case23.

101. Smart meters are also intended to facilitate the introduction of new demand response tariffs, which could reduce costs by both shifting load at peak times and reducing overall energy consumption. If consumers do not engage with and take up new tariffs, these benefits will not be realised. These new kinds of tariffs are likely to be relatively competitively priced so if customers do not engage, they are at risk of missing out on cheaper deals.

102. Evidence suggests that there is real potential to deliver energy savings through smart, but this will be dependent on the engagement strategy that is adopted.

104. In such an essential service, which is already complex and can be very confusing, consumers need to know who to turn to for trustworthy advice, including what to do if things go wrong and they want to pursue a complaint.

22 https://www.decc.gov.uk/assets/decc/11/consultation/smart-metering-imp-prog/4906-smart- meter-rollout-domestic-ia-response.pdf 23Consumer Focus, 2012, Consumers and domestic heating controls – a literature review http://bit.ly/LeIL46

Page 149147 of 298 105. In October 2011 Consumer Focus published ‘making the connection: strengthening the advice, complaint handling and redress framework’24. This report considers the current plethora of organisations involved in providing information, help, support and advice to energy consumers, and makes recommendations for strengthening, streamlining and simplifying the consumer education and advice in the future.

106. We would like to see Government (DECC and BIS) ensure a coordinated and joined up approach to assisting consumers. This means reviewing those publicly funded bodies involved in the provision of advice with a view to address any gaps and overlaps and ensure the consumer journey is as smooth as possible. This will also help facilitate the delivery of Government programmes such as the smart meter roll out. 107. Smart meters 108. Consumer Focus has strongly advocated for either Government or an independent body/organisation to have responsibility for the development and delivery of a consumer engagement strategy for smart metering. We view this as essential to deliver the consumer benefits identified in the business case. This engagement strategy would run alongside and help to coordinate supplier activity. 109. Central activity is needed to provide: • Clear, credible and consistent messaging • Trial and showcase best practice • Create a smart metering brand and facilitate joint branding to help develop trust and engage consumers in this £11.5bn programme • Mobilise local community networks and organisations • Provide a single point of contact for third parties to engage with the programme rather than having to deal with multiple suppliers • Provide independent advice and information especially on issues of concern and on energy efficiency. Consumer Focus’s March 2010 survey (base 2,000) reported that only 23 percent of gas consumers and 26 percent of electricity consumers trust their supplier to give help and advice on cutting their energy bills and going green • Develop an outreach scheme for low income and vulnerable consumers to ensure that all households can access the benefits of smart metering

111. DECC proposes to give energy suppliers the responsibility for setting up the Central Delivery Body (CDB). We have some reservations about relying on suppliers to do this. While we see a clear commercial incentive for suppliers to promote smart metering to get the meters on the wall and access the industry benefits, we believe there are insufficient drivers on energy companies to help customers reduce their

24 http://www.consumerfocus.org.uk/files/2011/10/Making-the-connection.pdf

Page 150148 of 298 energy use, or to help low income and vulnerable customers access the benefits of new technology. It is therefore essential that the CDB has very clear and measurable objectives, otherwise there is a risk that this will become a glorified PR agency for smart metering funded by customers. There is also less flexibility to link smart metering initiatives up with Green Deal and wider energy programmes. E.g. the creation of a single energy efficiency helpline where customers can go for independent advice.

112. We make the following further recommendations:

• Delivering behaviour change is notoriously difficult. Social marketing approaches are needed which tailor engagement strategies to different customer segments. • Support must be available free of charge to customers, during, and especially post installation. It is essential that people understand how to use their smart metering equipment, and the changes they can make to reduce their energy use. There is currently little incentive on suppliers to provide advice post installation, to help maintain customer’s interest after any novelty has worn off. • Robust piloting of community based engagement strategies where suppliers are required to coordinate with each other on key activities such as liaising with community groups and local authorities, outreach and media work. As rollout is supplier-led this kind of coordinated activity has been met with some resistance by many energy companies yet it is clear that this is the best way to engage customers and keep costs down. Suppliers who are rolling out early feel it undermines their competitive advantage. • The smart technology installed must be easy to use and provide relevant information if customers are to engage. The energy industry does not have a great track record in this area e.g. many boiler controls are notoriously hard to use. DECC has introduced new protections in this area. Consumer Focus has developed Guidance for Industry on usability to help with compliance. But both will need to be updated as lessons are learnt and consumer feedback increases. • Data available from smart meters will need to be free and in a format that enables consumers to monitor their energy usage and compare energy deals available in the market. Data formats and making information available in machine readable format, is being considered as part of BIS’s midata programme. However suppliers have been slow to make this information available to customers

113. Low income and vulnerable consumers

114. There is a particular challenge in engaging and supporting vulnerable customers. Extra time may be needed during the installation visit to demonstrate the smart metering system to consumers with additional needs. There is a tension between requirements on suppliers to get the meters on the wall as quickly as possible and the need to deliver a high-quality customer experience.

We strongly advocate that suppliers set up an Extra Help Scheme for vulnerable customers and that customers with additional needs should follow a dedicated pathway with appropriately trained staff. This scheme could include a package of help made up of measures which are already available to customers as part of suppliers existing social assistance programmes e.g. lower cost tariffs, debt advice, energy efficiency measures available under CERT/ Energy Company Obligation – as part of a joined up customer experience. We believe this could also help suppliers deliver existing social assistance obligations more cost effectively and with more accountability than currently. Sadly this opportunity is in danger of being missed. Our survey found strong public support for an Extra Help Scheme (81% thought it was a

Page 149151 of 298 good idea for people who are eligible)25. Consumer Focus has a more detailed set of recommendations based on our research of vulnerable experiences of having a smart meter, which we conducted jointly with DECC and . An Extra Help Scheme reportedly was effective during digital switchover.

115. What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies? 116. Early results from our Who Pays? project suggests that consumers believe they are already paying too much in taxes and too much in bills. Unsurprisingly there is resistance to further rises in either. That said there is support for investment in renewable energy and a degree of support for the socialisation in support for energy efficiency as has been the case with CERT and CESP. 117. Consumer Focus welcomed the Government’s decision to levy ECO on the basis of volume of sales rather than customer numbers (as was the case with CERT). Consumer Focus led a Fuel Poverty Action Group working group and produced research showing that a levy charged on volume of energy consumed, rather than a flat rate per household, would benefit most low income consumers due to the strong relationship between income and consumption. 118. However, it is left to suppliers to decide how these costs are recovered from customers. Moreover, there is a small minority of low income consumers with high consumption, for example due to medical needs, who would lose out from charging on a consumption basis. Targeted help at these groups of consumers could help reduce the impact of such a change. 119. Who Pays? Research found consumers were puzzled to discover their bills were being used to finance explicit cross subsidies such as the Warm Home Discount (WHD). In this scheme eligible consumers receive a £120 per household reduction in their electricity bill funded by a £10 per household levy on electricity. Since only 2 million households of the 6.4 million fuel poor households are eligible for the WHD, a large number of fuel poor households are cross-subsidising eligible households who may or may not be fuel poor. This strikes consumers as unfair. Their specific worries were about the eligibility criteria that energy companies would use, and they had little confidence that the money would be well targeted. 120. Overall, Consumer Focus believes that there is an inverse relationship between consumer exposure to energy bills and to direct taxes. With the proportion of income spent on energy decreasing as you move from low income to high income deciles, while the proportion of income spent on taxes increases as you move from low income to high income deciles. 121. Funding research and development policy for emerging energy technologies through bills rather than taxes may therefore be seen as unfair; disproportionately loading costs on the poorest in society. Given that 4.75m households are already in fuel poverty26, we question whether it is reasonable to expect energy bill payers to meet the costs of research and development for new technologies where it has not been proven that they are necessary in order to meet carbon targets or ensure security of supply. We do not believe that industrial policy should be paid for through energy bills.

25 We asked the following question: “Some people might need more help to use their smart meter and get the benefits from it. For this reason, consumer organisations want there to be an ‘Extra Help Scheme for people on certain benefits. Do you think it is a good idea for those who are eligible?”

26 DECC estimate for 2010, UK wide. Source: The 2012 Annual Report on Fuel Poverty Statistics is published today, 17 May 2012

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Annex 1. Energy and Climate Change Committee – Consumer Engagement and smart metering

The following are illustrative customer contacts on smart metering. They come from calls to Consumer Direct (now Citizen’s Advice Consumer Service) and contacts to Consumer Focus. Barriers to switching

I contacted the price comparison site and then entered into a contract over the phone. Yesterday I received an email saying that the supplier had to cancel my contract as they cannot support my meter [because I have a smart meter]. Caller has received a letter from Supplier A offering a smart meter. Caller has read about them and knows they can be beneficial. However the consumer is concerned that if he accepts a smart meter he won’t be able to switch supplier. Consumer moved into a property which had smart meters installed. Consumer has tried to switch but upon finding out about the smart meters many suppliers are saying they can’t take him on. Consumer is really struggling and says he is paying for too much with his current supplier. Consumer has smart meter in prepay mode. He is trying to change supplier and has approach supplier A and supplier y but neither can take him on because he has an electricity smart meter. He’s asked his current supplier to change it back to a normal credit meter but they say they cannot do this. Consumer is moving to supplier B to have a smart meter installed. Supplier z, her current provider told her that if they install a smart meter she won’t be able to move supplier afterwards. She wants to know if this is true.

Customer concerns about health

Customer told by Supplier x that they are going to be having a smart meter fitted. They have seen a report saying smart meters are bad for their health because of microwaves so they don’t wish to have one.

I am concerned for health reasons about the installation of wireless SMART meters in my home and locality to monitor gas and electric usage. I can provide technical details and scientific evidence on this if required. I basically do not want any wireless meters in my property and neither do I want myself or my family exposed in our own home to radiation passing through the walls and windows of my home from neighbouring properties. I want to make a formal record of this to the appropriate authority. I called my energy company who said to call the energy ombudsman and they said to contact yourselves or Ofgem. Please could you help.

I am extremely concerned about the implementation of the new smart meters for utilities as I have been diagnosed as Electro Hyper Sensitive have real problems with Wireless Signals. I understand that I would have the option not to have one of these & wonder if you can confirm this. I am also concerned about the range of these meters & how they would communicate the information to the Billing companies as I am already having a lot of problems due to neighbour’s home wifi whose range affects my home...

Page 151 of 298 Page 153 of 298 Remote disconnection Consumer has been contacted by company y to tell him he’s getting a smart meter but he read an article saying that a lot of them don’t work and that they can be disconnected remotely so he doesn’t want one.

Data privacy and access issues The consumer has been told that he will have a smart meter installed and wants to know if this is compulsory as he thinks they are very “big brother” and would rather not have one. Consumer did not want to give any personal details but has received a letter from company y stating that her meter must be changed ... he has now had meter changed but it is a smart meter which he does not want as did not ask for. The consumer has called company y to get the meter taken out in 24hours and a normal meter to be installed but cannot get them to remove the meter. Consumer says that if the meter is not removed he will take out the main fuse (advised him not to do this). Consumer wants company y to pay him for any data they sell that they get off the meter.

Costs/continue to get estimate bills Consumer called to say that they don’t want a smart meter because they’re a waste of time and it’s the taxpayer that’ll have to pay for this. Consumer feels that if people are going to use energy they’re going to use energy. I was advised to get smart meters installed to avoid estimated bills as I had lost my job and needed to manage my accounts. I received electricity bills but no gas bills. I had only paid £250. Then the company back billed me for £700 which they took directly from my account. This resulted in bank charges and extra charges on other accounts due to unpaid bills. I had a smart meter fitted four months ago. Since then my gas bills have been estimated every month and I have received no electricity bill at all. I have contacted my supplier a number of times but they have not sorted it out. Consumer doesn’t want a smart meter because the cost of them is paid back to the energy company through bills – doesn’t see this as a good deal.

September 2012

Page 152 of 298 Page 154 of 298 Written evidence submitted by Renewable Energy Association (CE 21)

“If climate science gets a bad press, the solutions have an even harder time.” – Duncan Clark, REA News, Winter 2011-12

The Renewable Energy Association (REA) has chosen to respond specifically to the following question asked by the committee:

 What impact does the media have on public perceptions of energy bills?

1. While we can’t directly answer this question, which would require qualitative research, we are keen to register our concern that recent media reporting has been exceptionally poor and it seems to fair to deduce it risks misleading the public on the true costs of renewable energy and associated impact on energy bills. Parts of the media appear keen to use poor quality research to reinforce pre-existing biased positions or to sensationalise important issues.

2. There has been a frenzy of media articles in recent months purporting to reveal the “hidden costs” that Government’s ‘green’ policies are supposedly adding to consumer bills – even where correct figures are given for ‘green’ levies these are usually blamed wholly on renewables either explicitly or implicitly e.g. through illustration with a picture of typically a wind turbine or solar panel.

3. Furthermore there is no sense of balance. The £170 odd added to average energy bills since last summer, as a direct result of fossil fuel price rises, is rarely reflected in coverage, yet it dwarfs the renewables levy.

4. For such a serious issue, the general level of the public discourse on energy is alarming and unhelpfully polarised. However, a small part of the media seems to be aware of the poor state of wider media coverage. See for example PIRC’s analysis of media coverage of renewables, http://www.pirc.info/projects/renewables-in-the-media/ which was helpfully covered by The Guardian journalist Duncan Clark in his blog How UK Newspaper Coverage is Skewed Against Renewable http://www.guardian.co.uk/environment/blog/2011/aug/05/uk-newspapers-renewables

5. We feel we are engaged in a war of attrition with well funded special interest groups who appear to be working in partnership with sympathetic allies in the media to damage the investment case for renewables. Al Gore has noted this is one of the key tactics used by

Page 155153 of 298 opponents to climate change science and those aggressively representing the interests perhaps of incumbent technologies, who have formidable resources.

6. The resources needed to correct and counter unsubstantiated allegations, or recycling of old myths about renewable energy, are substantial. The REA is currently stretched responding to a very wide range of far-reaching policy proposals from Government. While we are taking steps to raise our media work in response to such inaccurate coverage, we will not have the resources to counter the extent of misinformation. It is also difficult to see how one can really counter deliberate intentions to mislead.

7. The source material for these articles has thus far taken three distinct forms: non peer-reviewed reports from eco-sceptic think tanks; communications from Government officials; and unpublished reports from private sector consultancies. Media platforms including the Express, Mail and Telegraph, as well as BBC Panorama and ITV Tonight, have given undue coverage to poor assessments of the bill impacts of policies – these ‘expert’ calculations often fail under scrutiny – and have ignored assessments which are more comprehensive and authoritative. The passage of information from source to article is illustrated for several high profile examples in Figure 1.

8. A concerted campaign appears to be underway involving in particular Civitas, the Global Warming Policy Foundation, Policy Exchange, and the Renewable Energy Foundation in partnership with parts of the media. Please see the ENDs blog on the GWPF and Mail ‘war’ on renewables at http://blogs.endsreport.com/carbonandenergy/2011/07/26/lord-lawson-and-the-daily-mail-gang-up-on-green- energy-taxes/ 9. Note that Policy Exchange and GWPF either do not, or rarely reveal, who has funded their reports. We have asked Policy Exchange, for example, who funded their most recent report and received no answer. From what we have seen of their commentary we deduce, but cannot be certain, that GWPF are funded by Shale Gas interests. Bob Ward from the Grantham Institute has commented on the details of GWPF accounts filed in 2011 with the Charities Commission and at Companies House which showed only a very small fraction of the £0.5million funding received came from membership feeds. He concluded; "We can now see that the campaign conducted by the Global Warming Policy Foundation, which includes lobbying newspaper editors and MPs, is well-funded by money from secret donors. Its income suggests that it only has about 80 members, which means that it is a fringe group promoting the interests of a very small number of politically motivated campaigners." http://www.guardian.co.uk/environment/2011/jan/20/global-warming-policy- foundation-donors

Page 154156 of 298 10. Corrections are frequently requested and published, thanks in large part to the excellent work of Carbon Brief1. However, headlines get more far more readers than corrections columns. The renewable energy industry is very concerned that consumers understand the real reasons behind their energy bill increases, they ways in which they may actively reduce their bills in environmentally friendly ways – and why Government considers it essential to make investments in new technologies.

11. We wish to stress the following points, based on analysis of coverage in the Daily Mail, BBC, and Daily Telegraph by REA’s press officer James Beard (more evidence on this follows below): • There has been a failure in the media to distinguish between causes of past/present bill increases and causes of future bill increases. A particularly pernicious and recurrent problem is the habit of setting the future costs of green policies against current energy costs, rather than against counterfactual future energy costs. • There is a failure to distinguish between ‘green’ levies and renewables investment levies. This often results in the £80 odd of ‘green’ levies being wrongly attributed to renewables (renewables added £20 to energy bills last year). In fact the EU ETS is effectively a tax on pollution designed to better internalise the cost of fossil fuels – it is a pollution tax, rather than a ‘green’ levy. Energy efficiency measures impose far more on energy bills than renewables, and these result in reduced bills for many vulnerable householders. • There has been a failure in the media and its sources to distinguish between energy and electricity, and between costs, prices, and bills. • Certain sections of the media are both unduly willing to publicise non-authoritative data, and unduly reticent to publicise authoritative data, on the causes of consumer bill increases or on the performance of some renewable technologies. Some of this imbalance can be explained by particular antipathy towards wind power, which is based in either climate change denial and/or resentment of wind turbines based on aesthetic/NIMBYist arguments. • Certain sections of the media have a tendency to lead with startling headline figures/assertions, later proved to be untrue/misleading, resulting in the publication of corrections. However, the damage is already done by the headline, and the corrections column is largely ignored by the readership. • Certain sections of the print/online media seem to exhibit a mismatch between sensationalised article headlines and relatively reasonable article content, suggesting a conscious editorial decision to present a particular (misleading) argument.

1http://www.carbonbrief.org/

Page 155157 of 298 • We also question the extent to which stakeholders have recourse to reverse the damage done to public opinion by such misrepresentations. The eco-sceptic think tanks seem to be better funded and resourced than the non-profit organisations (such as the REA) which seek to clarify the issue. • We also note that the British media culture, which emphasises rapidity rather than quality of response, makes it difficult to effectively counter such misrepresentations. • As a consequence, while public support for renewable energy remains strong, this is surprising given the nature of current coverage. A recent poll by The Guardian did show some reduction in support.

2011.09.05 Ben 2011/12 2012.01.09 Civitas 2012.01.18 Policy 2012.03.07 GWPF Moxham & Gila (Unreleased) AF- (Ruth Lea): Exchange (Simon (Gordon Hughes): Sacks: Advisers' Mercados UK: Electricity Costs: The Less): The Full Cost Why is wind power letter to David Powerful Targets folly of wind-power to Households of so expensive? An Cameron on energy Renewable Energy economic analysis and climate policies Policies

2011.09.04 The 2011.11.07 BBC 2012.01.09 The 2012.01.10 Mail 2012.01.18 Mail 2012.01.18 The 2012.03.04 The 2012.03.07 Mail Online 2012.03.08 The Telegraph (Andrew Panorama (Tom Telegraph (Louise Online (David Online (Jason Telegraph (Neil Sunday Times (Sean Poulter): Telegraph (James Porter): Heap): What is really Gray): Wind power Thomas): Will the Groves): Plans for O'Brien): Why is (Danny Fortson): £120billion gamble on Delingpole): Wind wind turbines: Green Environment policy fuelling energy bills is expensive and winds of change green energy drive DECC so defensive Blown Away farms: even worse energy 'ten times reforms to add £300 in Britain? ineffective at cutting finally blow these 'will cost families about the costs of dearer than power than we thought… to energy bills CO2 say Civitas eye sores away? £400 a year by 2020' renewable energy? stations'

Page 158156 of 298

12. Fig 1. Examples of questionable sources seized upon by certain media platforms.

13. There has been a failure in the media to distinguish between causes of past/present bill increases and causes of future bill increases. A particularly pernicious and recurrent problem is the habit of setting the future costs of green policies against current energy costs, rather than against counterfactual future energy costs.

a. The main offender for confusing past and future contributions of renewable energy policies to consumer bills is BBC Panorama: 2011.11.07 BBC Panorama (Tom Heap): What is really fuelling energy bills in Britain? (source: AF Consult/KPMG report). A more appropriate title would have been “What will be fuelling your energy bill to 2020?”. This focus on the present tense in headline statements gave the impression that renewable energy was already driving up energy bills. The BBC issued an online correction (2012.01.31)2 acknowledging that it had failed to adequately differentiate between causes of past/present bill increases and causes of future bill increases. Renewables add just £20 to energy bills currently, according to Ofgem data.

b. Another offender was the Daily Mail: 2011.06.09 Mail Online (Benny Peiser): The REAL reason fuel bills are going through the roof? Crackpot green taxes you're never even told about. (front page; source: not given; assume GWPF calculations). This article claimed that ‘the Government's stubborn but wrong-headed commitment to renewable energy [and] so-called green stealth taxes are already adding 15-20 per cent to the average domestic power bill and even more to business users.’ This claim is simply untrue. Past/present costs of green policies added to energy bills is an empirical matter. Ofgem (2011.10.14a3 & 2011.10.14b4) and the Committee on Climate Change (2011.12.155) have both conducted inquiries into past and present bill increases, and all found the primary driver of bill increases to be increasing, and increasingly volatile, wholesale gas prices. The

2 http://news.bbc.co.uk/panorama/hi/front_page/newsid_9691000/9691095.stm 3 Ofgem (2011.10.14a, p.16): Attribute only 6% of the average household bill to “Environmental and social supplier obligations”. 4 Ofgem (2011.10.14b, p. 2): ‘At the moment, the cost of Government environmental and energy efficiency programmes adds around £100 [7.7% of total bill] on to the average energy bill of £1,300. However, greater reliance on non-fossil fuels such as nuclear and renewables, could reduce Britain’s dependence on [increasingly expensive] gas imports.’ 5 CCC (2011.12.15): ‘[T]he average combined bill increased from £605 per household in 2004 to £1,060 in 2010. Of this £455 increase… [a]round £75 was due to low- carbon policy costs [7.0% of total bill], within which it is important to distinguish between costs of £30 towards decarbonising the energy mix through support for investments in l ow - carbon power generation including renewables, and costs of £45 for funding of energy efficiency measures, without which bills could have increased further over this period. Our analysis therefore clearly shows that it is not the case that energy bills are currently high due to costs of low-carbon measures.’

Page 157159 of 298 Mail printed a correction on 7th September 20116. However, the corrections column is much smaller than the front page headline. We question the extent to which the obligation to print corrections actually acts as a deterrent for the publication of flagrant mistruths.

c. Several media platforms make the frustrating mistake/distortion of claiming that green policies will add to energy bills, while failing to acknowledge that bills would go up even in the absence of such policies – and that this counterfactual increase will actually be offset to some degree by these green policies, or that renewables investment as a proportion of energy bills may reduce. It is very misleading to set the future costs of green policies against current energy costs, rather than against counterfactual future energy costs. For example: 2011.12.29 The Telegraph (Rowena Mason & David Millward): Greener energy will cost £4,600 each a year. Headline: ‘Greener energy will cost £4,600 each a year’. Sub-heading: ‘The Coalition's plans to convert Britain to green energy would cost the country the equivalent of £4,600 per person a year, according to official forecasts’. d. First sentence: ‘Reducing dependence on fossil fuels and moving to renewable and nuclear energy would cost an additional £60billion every year until 2050, the officials said’.

e. However, as the second sentence makes clear, increasing, and increasingly volatile, fossil fuel prices mean that energy costs are going up anyway:

f. Second sentence: But Professor David MacKay, a government adviser on climate change, said that doing nothing to reduce carbon emissions would prove even more expensive because of rising energy prices.

g. This sentence makes a nonsense of the preceding three sections of text, as it makes it clear that energy costs are going up anyway – regardless of DECC’s green policies. The real reasons for these increases are the much-needed internalisation of climate change externalities (which past and present cost assessments have ignored or under-emphasised) and the increasing, and increasingly volatile, costs of fossil fuels. The “do nothing” scenario is in fact more expensive (£4,682 vs £4,598). It is

6 http://www.carbonbrief.org/blog/2011/09/gwpf-mail-pcc - "Articles from June 9 reported comments from Dr Benny Peiser, director of the Global Warming Policy Foundation, which suggested that 'green stealth taxes' add 15 to 20 percent to energy bills. According to Ofgem, the correct figure for environmental costs is currently no more than 9%. We are happy to clarify this."

Page 158160 of 298 therefore misleading in the extreme to give the article the headline “Greener energy will cost £4,600 each a year”. A more appropriate headline “Greener energy could save over £80 each a year.”

h. This habit of announcing “green policies to add £x to bills”, comparing future bills with present bills rather than counterfactual future bills, is widespread, e.g.: • 2011.06.09 Mail Online (Benny Peiser): The REAL reason fuel bills are going through the roof? Crackpot green taxes you're never even told about • 2011.09.04 The Telegraph (Andrew Porter): Environment policy reforms to add £300 to energy bills • 2011.12.15 The Telegraph (Staff): Green policies to add £110 to energy bills • 2011.12.29 The Telegraph (Rowena Mason & David Millward): Greener energy will cost £4,600 each a year • 2012.01.09 The Telegraph (Louise Gray): Wind power is expensive and ineffective at cutting CO2 say Civitas • 2012.01.18 Mail Online (Jason Groves): Plans for green energy drive 'will cost families £400 a year by 2020' 2012.01.18 The Telegraph (Neil O'Brien): Why is DECC so defensive about the costs of renewable energy? • 2012.03.07 Mail Online (Sean Poulter): £120billion gamble on wind turbines: Green energy 'ten times dearer than power stations' • 2012.03.08 The Telegraph (James Delingpole): Wind farms: even worse than we thought…

14. There has been a failure in the media and its sources to distinguish between energy and electricity, and between costs, prices, and bills.

a. Again, there are several instances of this problem. To illustrate with two crucial examples. 2011.09.04 The Telegraph (Andrew Porter): Environment policy reforms to add £300 to energy bills. The source is a memo from Government advisors Ben Moxham and Gila Sacks to David Cameron. Carbon Brief (2011.09.05)7 provides a useful analysis of the problems with the Telegraph publicising the conclusions contained in this source. As the reforms in question are specific to electricity, the 30% increase anticipated applies to electricity alone, and works out at £135, not £300. The source also assumes that all DECC’s measures aimed at reducing bills (e.g. energy efficiency under the Green Deal) will fail. This is an unreasonable and baseless assumption.

7 http://www.carbonbrief.org/blog/2011/09/telegraph-%C2%A3300-figure-usual-mistakes

Page 161159 of 298 DECC would later confirm the projected cost and benefit impacts of their policies on household bills (2011.11.23)8, a publication which was poorly publicised by the press.

b. Another example is 2012.01.18 Policy Exchange (Simon Less): The Full Cost to Households of Renewable Energy Policies which was the source for 2012.01.18 Mail Online (Jason Groves): Plans for green energy drive 'will cost families £400 a year by 2020' and 2012.01.18 The Telegraph (Neil O'Brien): Why is DECC so defensive about the costs of renewable energy? Dr Robert Gross of Imperial College conducted a thorough analysis of this report (12.02)9. It is fairly clear that this particular piece of work would not stand up to peer review, for several reasons. Firstly, it conflates prices with bills in an overall discussion about costs10. This problem was translated into subsequent media coverage. Journalists and researchers must take more care to fully explain the difference between prices and bills, as the latter depends on more factors than simply the former. Furthermore, according to Dr Gross, in assessing so-called “missing costs”, the report relies on “anecdote and unsubstantiated assertion” and in some places “guesswork”. It seems reasonable eo expect journalists to distinguish between well researched and poorly researched reports.

15. Certain sections of the media are both unduly willing to publicise non-authoritative data, and unduly reticent to publicise authoritative data, on the causes of consumer bill increases.

11, three are non-peer reviewed think tank/lobby group publications12, and one is an unpublished report disowned by the consultancy which commissioned it13. This raises important

8 http://www.decc.gov.uk/assets/decc/11/about-us/economics-social-research/3593-estimated-impacts-of-our-policies-on-energy-prices.pdf,11/about-us/economics- social-research/3593-estimated-impacts-of-our-policies-on-energy-prices.pdf 9 https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cts=1331224064334&ved=0CCkQFjAA&url=https%3A%2F%2Fworkspace.imperial.ac.uk%2Ficep t%2FPublic%2FPolicies%2520and%2520consumer%2520bills%2520-%2520investigating%2520PX.pdf&ei=_t1YT6PGMoje8QPG7JnUDg&usg=AFQjCNGtdKB- VLjzsbFSRLs5hmmA6wwrCg&sig2=-CBdaTYV2JQPsWbxJ6cGPg 10 “PX overlooks most of the positive outcomes associated with energy efficiency policy. Their paper then shifts from discussing bills to discussing prices as if there is no distinction between the two. This is misleading.” 11 2011.09.05 Ben Moxham & Gila Sacks: Advisers' letter to David Cameron on energy and climate policies 12 2012.01.09 Civitas (Ruth Lea): Electricity Costs: The folly of wind-power 2012.01.18 Policy Exchange (Simon Less): The Full Cost to Households of Renewable Energy Policies 2012.03.07 Global Warming Policy Foundation (Gordon Hughes): Why is wind power so expensive? An economic analysis 13 2011/12 (Unreleased) AF-Mercados UK (authors unknown): Powerful Targets (based on KPMG: Thinking About the Affordable, also unreleased)

Page 162160 of 298 questions about journalists’ capacity to distinguish between an accurate/reliable source, and an inaccurate/unreliable source. It appears that in many cases, the fit with the editorial line of a media platform, or the public appeal of the headline findings, are more likely to influence the decision to publish than the actual truthfulness of the source.

b. These same segments of the media seem to ignore Government’s own assessments of the impacts of its green and renewable energy policies on household energy bills – unless one of the reports above is directly challenging them. For instance, DECC has issued a projection of the impact of its policies on household bills through to 2020, and two independent Government agencies – Ofgem and the Committee on Climate Change – have both found the impact of green policies so far to have been negligible, particularly when compared with the price spikings of wholesale gas. Yet these assessments get relatively little coverage. And often, even when such reports are covered, they get misinterpreted (see 1.3 above, and also the exact same phenomenon in 2011.12.15 The Telegraph (Staff): Green policies to add £110 to energy bills).

How could this trend for misreporting and potentially misleading the consumer be better countered?

16. The quality of reporting in some parts of the media has been under the spotlight under the Leveson inquiry. There may be opportunities to increase general standards for accuracy relating to topics, not just people. 17. The Press Complaints commission could be given a remit to pay attention to particular areas of misreporting with better sanction powers – better than very small corrections after the event. 18. The very poor quality of the public discourse on energy requires urgent attention. Government could initiate a programme of e.g. public road shows to try to initiate and frame a better quality of debate and public engagement. 19. We would be greatly helped by the clearer provision of information from Government on projected costs for renewables policies. We have nothing to hide, as this is an investment case we feel confident making. 20. It would be particularly helpful to have a clear analysis of investment in business as usual, since 25%+ of power generation, and significant amounts of gas and network infrastructure are coming to the end of their nature life and require expensive replacement in any event. It would be helpful to quantify the additional cost of renewables investment. 21. Many DECC Impact Assessments are layered upon existing policies, so it is often difficult to extract clear cost data for renewables policies to 2020. The Renewable Energy Strategy Impact Assessment, for example, details costs to 2030. The EMR Impact Assessment

Page 163 of 298 Page 161 of 298 appears to cover only the costs and benefits of nuclear. The agenda of groups like GWPF is helped by foggy or unclear information from government, however much they claim to want clear information14. 22. Government could be more systematic in quantifying and championing benefits beyond carbon saved. Unfortunately the onus to detail economic benefits falls on the industry. Surely there is space for a positive vision, not just a defensive position. 23. Interventions like Imperial College’s analysis of Policy Exchange’s report Nonsense on Stilts are extremely welcome indeed and should be encouraged. Mobilising academia/science to help us present facts would be extremely helpful.

Leonie Greene [email protected] James Beard [email protected]

March 2012

14 2011.06.09 Mail Online (Benny Peiser): The REAL reason fuel bills are going through the roof? Crackpot green taxes you're never even told about

Page 164 of 298 Page 162 of 298 Written evidence submitted by the Local Government Association (CE 22)

1. Summary • There are examples where some councils have been helping their residents with energy literacy. This includes making In-Home Energy Displays free to hire from Libraries and the council support of area-based awareness campaigns (’s ‘Sustainable Hackbridge’).

• Councils have been closely involved in the delivery of many insulation and energy efficiency programmes. One of the most frequently used examples is Kirklees Warm Zones.

• Based on feedback from member councils, the majority of their residents and businesses are unaware of the Green Deal, Smart Metering and the Ofgem Retail Market Reform. Councils have more regular local interactions than large national companies and government departments, and with sufficient support could be well-placed to assist their residents and businesses.

• Some councils are exploring whether they could have a role in assisting their residents get the best energy deals by negotiating and bulk-purchasing on their behalf.

• The notion that schemes such as the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP) were financed and delivered solely using money that was ‘bill-levied’ is false. Councils and social housing providers themselves have also contributed public funds to making these schemes work. As energy suppliers have sought to minimise their ‘private sector’ contribution, they have been seeking to maximise the ‘public sector’ contribution.

2. Introduction

The Local Government Association (LGA) is a voluntary membership body and our member authorities cover every part of England and Wales. Together they represent over 50 million people and spend around £113 billion a year on local services. They include county councils, metropolitan district councils, English unitary authorities, London boroughs and shire district councils, along with fire authorities, police authorities, national park authorities and passenger transport authorities.

3.1 How energy literate are consumers in the UK?

3.1.2 Based on the representation we have had from our council members’ experience when they engage with private owner-occupied households, privately-rented households and socially-rented households, as well as landlords, the majority are not ‘aware’ of the link between their behaviour in the home and the final energy bill they receive.

3.1.3 Some councils have sought to engage their residential community via area- based awareness campaigns and free or subsidised insulation campaigns. Examples of this include the London Borough of Sutton’s ‘Sustainable Hackbridge’ initiative, in partnership with BioRegionali, and the frequently referred to ‘Kirklees Warm Zones’ project, which, in partnership with Scottish Power, offered free insulation to its residentsii.

Page 165163 of 298 3.1.4 Some councils have also been offering the loan of In-Home Energy Displays to help their residents understand the link between their behaviour in the home, and the appliances they use, and their electricity consumption and bills. Councils include Sheffield City Council and Exeter City Counciliii.

3.2 To what extent are consumers aware of policies such as the Green Deal, Smart Meter Roll Out and Ofgem’s Retail Market Reform?

3.2.1 Based on feedback that the LGA has received from its member councils, their residents and businesses are in the majority not aware of the Green Deal, the Smart Meter Roll Out or Ofgem’s Retail Market Reform.

3.3 What are the potential implications of a lack of consumer awareness in these areas?

3.3.1 If consumers are unaware of the above programmes, then they cannot take advantage of the offers that are being made available. This means that they are spending more than necessary on their energy bills, reducing their disposal income and the amount of income they are able to spend in the local area. This has a knock-on effect on local businesses.

3.3.2 Lack of consumer awareness, and a lack of transparency in how the energy suppliers operate, also means that customers are unable to hold their providers to account over the cost of their energy supply and the conduct of the companies. Councils are placed under scrutiny to be transparent over how and why they are setting the council tax at a certain level, and Energy Suppliers should have to do the same. Ofgem’s own ‘Retail Market Review’ determined that “consumers are at risk from a number of features in the market which reduce the effectiveness of competition” and that their intervention is needed to “increase the transparency of company accounting practicesiv”.

3.3.3 In the longer term, if Government is reliant on these schemes to meet their statutory Carbon Budgets, then a lack of consumer awareness will mean that the targets will not be met. In a local context, if the tools and schemes being made available are not appropriate for householders and businesses to take advantage of, then local councils will not be able to meet their locally set fuel poverty and carbon reduction targets, nor contribute to national targets.

3.4 What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies?

3.4.1 The main disadvantage from a council-perspective of using levies on bills rather than general taxation is that councils are unable to direct the resources in what they consider the most appropriate way for their residents. As set out in the LGA’s 2009 publication ‘From Kyoto to Kettering’v, we believe councils can deliver the schemes at lower cost and more successfully. However, it is difficult for us to quantify this accurately because of the lack of transparency over the Energy Suppliers’ costs. Whilst a public body is subject to making its transactions and costs available for public scrutiny, a private agency is not.

Page 164166 of 298 As a result, we do not have a true picture of the cost of implementing the schemes levied on bills.

3.4.2 Our experience with the Community Energy Saving Programme (CESP)vi is that, as Energy Companies seek to minimise the cost of their programmes, they seek to maximise the contribution from other agencies, laying the risk and in many cases the majority of the cost at another organisation’s door. This is with the Energy Company retaining control of the quality and specification of the materials being used. Many Energy Companies have also insisted on using their own labour, leading to delays as councils’ own maintenance contracts, subject to OJEU and public scrutiny for value for money, are challenged. The contribution of public money to making these schemes a success has not been factored into their analysis. Public money has already been used to deliver these ‘bill levied’ schemes.

3.4.3 Councils have also found that, although their residents contribute to the schemes via their energy bills, they do not benefit because they are situated in a ‘more costly area’. The GLA’s 2008 report ‘Lagging Behind’vii demonstrates the difficulties London has experienced. Rural councils have also had difficulty in enticing the Energy Suppliers to come to their areas. The LGA attempted to provide a mechanism for Energy Suppliers to reach rural authorities who were struggling to benefit – either because they were too small to negotiate with the Energy Suppliers or because reaching their residents was more costly. Whilst the ‘Carbon Reduction One Stop Shop’ (CROSS) brokerage scheme had support from councils, the Energy Suppliers chose not to support the scheme. We are now in the situation where Energy Suppliers are struggling to meet their CERT and CESP targets.

3.4.4 Some councils are exploring whether they could have a role in negotiating with the Energy Suppliers on their residents’ and businesses’ behalf to get them the best energy tariff deal. Residents could then choose to purchase energy via their local council, should they wish. This would also allow the council to negotiate for other services such as solar panels, insulation, smart metering, etc, to be installed in an area-based approach, as well as integrating other local priorities such as fire safety inspections, flood prevention messages and carbon monoxide alarms. As these councils are currently exploring this and negotiating, they do not wish to present evidence at this time.

3.4.5 The LGA has also had representation from organisations supporting the E3G ‘Energy Revolution’, which is proposing that, rather than placing the cost of energy efficiency programmes on end users bills, the UK should use the revenue raised from the EU Emissions Trading Scheme (EU ETS) and Carbon Floor Priceviii. Their work states that using this money could give a householder an average grant of £6,500, bringing down their energy bills by £310 a year and removing 9 our of 10 homes from fuel poverty. The UK is the only government taking part in the EU ETS that does not recycle the revenue that it raises.

March 2012

PagePage 165 167 of of298 298 i http://www.bioregional.com/news-views/news/hackbridge-wins-funding-to-help-residents- become-energy-efficient/ ii http://www.kirklees.gov.uk/community/environment/energyconservation/warmzone/warmzonemen u.shtml iii For more information on council energy display loan schemes see http://www.sheffield.gov.uk/in- your-area/housing-services/environmental-sustainability/smart-meter-loans; http://www.exeter.gov.uk/index.aspx?articleid=10545 iv http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Pages/rmr.aspx v LGA Kyoto to Kettering (2009): http://new.lga.gov.uk/lga/aio/2400550 vi Evaluation of CESP: http://www.decc.gov.uk/en/content/cms/funding/funding_ops/cesp/cesp.aspx vii GLA’s Lagging Behind report: http://www.london.gov.uk/who-runs-london/the-london- assembly/publications/environment/lagging-behind-insulating-homes-london viii http://www.e3g.org/about/news-articles/energy-bill-revolution/

PagePage 166 168 of of298 298 Written evidence submitted by Carbon Brief (CE 23)

Executive Summary

1. Over the past nine months we have followed and analysed media coverage of ‘green’ policy measures and their impact on domestic energy bills in some detail1.

2. In particular, we have noted a series of newspaper articles which overstate the current impact of green policies (or 'environmental and social costs') on energy bills. Some appear to be the result of simple errors (for example, confusing electricity prices with energy bills, or ignoring the impact of gas prices on bills), others are the result of research being reported in a what seems to us a highly partial or selective way.

3. Many of these claims have been made in the pages of the Daily Mail and the Mail on Sunday, both of which have taken a campaigning stance against ‘green taxes’. Over the last nine months, the Mail group has printed three corrections to its coverage of this issue following PCC complaints which we have made. We have also observed that the Mail’s framing of the issue has been adopted by other media, and some of the same inaccuracies repeated.

4. Predictions about future energy costs are fiercely contested, and trends in the price of energy are influenced by a myriad of national and international factors. It it difficult for experts to make confident predictions about what is going to happen to energy prices in the future. When predictions fall within a range, this leaves media outlets free to pick one end of the range to provide a sensational headline.

5. In this environment, it appears to us that the highly partisan and sometimes inaccurate reporting of this issue is likely to be having a significant negative effect on consumer awareness. There is no generally accepted neutral arbiter on the issue - Ofgem is the closest thing, but they do not produce information with a consumer audience in mind. Currently only one of the six large energy companies provides bills with even basic information to customers about what costs contribute to the total2.

6. We have three suggested recommendations: that the energy regular or a similar ‘neutral arbiter’ be given the job of communicating these issues to consumers, rather than just to Government and industry; that energy companies be required to communicate more clearly about how their customer's bills break down; and that care is taken to ensure changes to the regulation of the press currently being considered limit the promotion of inaccurate coverage of this topic.

1 For our full range of blogs see on this topic see: Carbon Brief, What the rebirth of the PCC could mean for the climate conversation, 8 Mar 2012 2 The Guardian, MP calls for transparency over green taxes on energy bills, 7 Nov 2011, Scottish Power provide a breakdown which lists 'VAT and government obligations' but does not go into more detail.

Page 167169 of 298 A note on costs

7. According to Ofgem, green energy measures currently make up £100 or 7% of a typical household energy bill3. Wholesale fuel costs account for £600 or 48%, supplier costs and margin account for £273 or 22%.

8. The Climate Change Committee has calculated that between 2004 and 2010 the increase in the wholesale price of gas contributed about £290 to a total £455 rise in bills. The introduction of policies to reduce carbon emissions contributed £754.

9. DECC's most recent breakdown of "social and environmental costs" on energy bills suggests that of the £89 they estimate is added to an energy bill, 17% (around 1% of the total bill) directly subsidises renewable energy through the Renewables Obligation. The rest of the money goes to subsidising energy saving schemes, including to vulnerable people and those on low incomes, and payments to the EUETS.5

What impact does the media have on public perceptions of energy bills?

10. As well as writing about press coverage of energy bills as it has occurred, for the purposes of writing this document we examined all UK national newspaper coverage of energy bills over the time period 7th June 2011 to present, searching for the term "energy bills" over that period. Of the 348 articles identified (which includes those we wrote about when they were published), 61 focused on criticising green energy policy as a central theme (see Annex).

11. Typical headlines from this section include: “Fanatical greens want to see our energy bills soar” (Daily Express); “It’s green taxes that are driving up our fuel bills” (Daily Mail); “Glowing up: Green policies will add £300 to fuel bills” (The Sun); “Huhne’s windfarms are inflating energy bills” (Daily Telegraph).

12. This theme of "green taxes" came to prominence on 9th June 2011 with a front-page Daily Mail story6 and a series of follow-up articles stating that green policy measures were adding £200 to household energy bills. The Mail set out its views on the subject in an editorial on the same day:

13. "... huge uncertainties surround the science of climate change. Yet at immense cost, the Government is blindly committing Britain to the world's most ambitious targets for cutting carbon emissions. Already millions are feeling acute pain, through hidden levies which have contributed to the latest £200-a-year increases in our energy bills... the scandal is that these secret extras which add 15 to 20 per cent aren't even itemised on our gas and electricity bills."7

14. This Daily Mail piece initiated an upturn in coverage of this area by the Mail, which was gradually picked up by other parts of the press. The framing and figures the Mail adopted were repeated by other newspapers. Headlines at the time included: "Green taxes make up 20 percent

3 Ofgem, Why are energy prices rising?, 14 Oct 2011 4 Committee on Climate Change, Household energy bills - impacts of meeting carbon budgets, December 2011 5 DECC, Estimated impacts of energy and climate change policies on energy prices and bills, 24 November 2011, Table D1 p.62 6 The Daily Mail, Hidden green tax in fuel bills, 9 Jun 2011 7 The Daily Mail, 'Inconvenient Truths' (editorial), 9th June 2011, p.14

Page 168170 of 298 of household energy bills, campaigners warn" (Daily Telegraph)8, "Industry begins to count the true cost of ’climate change’" (Sunday Telegraph)9, "Families hit by £200 green tax in energy bills" (Daily Express).

15. This initial claim that ‘green taxes’ made up between 15 and 20 percent of an average household's combined annual gas and electricity bill (from £154 to £206 – often abbreviated to £200) was sourced to the thinktank the Global Warming Policy Foundation (GWPF)10. At the time Ofgem's equivalent view was that "environmental costs" contributed £80 or around 8% to the average annual gas and electric bill11, whilst DECC estimated that they accounted for 4% of the average bill12.

16. We have made a submission to the Leveson Inquiry in which we set down our interactions with the Mail Group and the PCC on this issue in some detail.13 To summarise, we complained to the PCC that the £200 figure was inaccurate and misleading. The Mail initially contested the complaint, citing figures from BERR featured in a 2008 report by the thinktank Civitas.14 These figures did not substantiate the claim, as they referred to electricity rather than energy, the high end figure applied to non-domestic bills, and most relevantly the figures had been updated by newer analysis from BERR's replacement DECC.

17. We pointed this out, and the Mail printed a correction to their coverage on 7th September 2011.15 However, shortly afterwards, the Mail on Sunday re-used the original £200 figure in two different editorials. After we complained again, the Mail on Sunday printed a correction to both of these claims on 14th November 2011. Meanwhile, the Daily Mail had inaccurately claimed in two different editorials that green energy measures were currently adding £300 to bills. We made a third complaint and the Daily Mail printed a third correction on 19th December 2011. Despite three corrections from the Mail group on this issue, the Daily Mail subsequently re-used the inaccurate £200 figure in a Money Mail column in January16.

18. In making the case that green energy measures represent a significant and rising proportion of energy bills, the Mail produced other coverage which was confused at best, and in some cases deliberating misleading:

19. The Mail wrote a front-page headline article claiming that energy bills are “set to rise by around £1,000 a year - to £2,000” as a result of green policies, based on research by the bank Unicredit. This research was not publicly available. When we obtained a copy, the figure was cited just once, in a section which had been quoted in a blog by the FT some months before17. It seems likely that the Mail had not seen the report. The report did not detail how the figure had been

8 The Telegraph, Green taxes make up 20 per cent of household energy bills, campaigners warn, 9 Jun 2011 9 The Telegraph, Industry begins to count the true cost of ‘climate change’, 11 Jun 2011 10 The GWPF, The Hidden Green Taxes in UK Fuel Bills, 8 Jun 2011 11 Ofgem, Updated Household bills explained, 18 Jan 2011 12 DECC, Estimated impacts of energy and climate change policies on energy prices and bills, Nov 2011 13 http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/Submission- -Carbon-Brief.pdf 14 Civitas, British energy policy and the threat to manufacturing industry, April 2010 15 Carbon Brief, Daily Mail prints correction over GWPF green tax claims, 7 Sep 2011 16 The Daily Mail, Reveal this ‘green tax’ on fuel bills, 14 Jan, 2012 17 Carbon Brief, A thousand pounds on energy bills due to green policies?, 20 July 2011

Page 171169 of 298 calculated, or specify how much of the projected cost increase would be due to green policies.

20. In covering research which concluded rising energy bills were the result of both increased wholesale gas prices and green policies, the Mail omitted the findings about gas prices and focused only on green policies18. The Mail’s headline “Green taxes could force one in four into fuel poverty” misrepresented the report’s findings which were that rising gas prices would account for a significant proportion of any rise in bills.

21. In discussing a report by the Climate Change Committee, the Mail’s headline was “Electricity bills to rocket by 25% because of 'green' targets, says Government”.19 This 25% figure was from an annex of the report, and applied only to the one in ten “non-typical” households which use electric heating and which would be disproportionately impacted. This was not mentioned in the article20;

22. Two months after the Mail covered DECC’s figures on energy bills on the front page21, they ran another story using the same figures. The headline: “Official: Green taxes add 15% to your bills” inflated DECC's estimate of green costs from 7% to 15%, by conflating energy bills with electricity prices.

23. According to an article in ENDS, the Mail “put on the war paint” to "campaign" against green taxes during this period22. Over the nine months, the Mail group printed three separate corrections to its coverage of energy bills following PCC complaints which we made. This did not prevent them from repeating the inaccuracies in question, but these three corrections demonstrate that the Mail's campaign was launched on the basis of inaccurate figures.

24. Coverage by any national newspaper, particularly of this volume, is a significant part of the public debate. The Daily Mail is widely read and it seems reasonable to conclude that this extensive coverage has not improved public understanding of this issue. In the wake of and presumably inspired by the Mail's coverage, other media organisations started to focus on the effect of green policies on energy bills. The Mail’s campaign was also seen to have a political impact after George Osborne referenced the impact of green measures on bills in his conference speech.23

25. The subsequent prominence of the green tax frame suggests to us that the Mail's coverage has been influential. There has been plenty of accurate coverage of green costs on energy bills, but there are significant examples where the same errors or similar have been repeated, where coverage would be extremely confusing for a lay reader, or where coverage does not give an accurate picture of the factors affecting actual energy costs for consumers. We have not addressed all of these in detail but have picked out a few examples below.

18 Carbon Brief, Mail story on energy price rises ignores the role of spiralling wholesale fuel costs, 12 Oct 2011 19 The Daily Mail, Electricity bills to rocket by 25% because of ‘green’ targets, says Government, 15 Dec 2011 20 Carbon Brief, Analysis of ‘non-typical households’ used to support misleading reporting of energy bills, 15 Dec 2011 21 The Daily Mail, Green ‘tax’ to rise every year, 24 Nov 2011 22 ENDS Report blogs, Lord Lawson and the Daily Mail gang up on green energy taxes, 26 Jul 2011 23 See for example The Guardian, How to solve ‘green growth denial in one stroke’. 27 October 2011

Page 170172 of 298

26. A front-page Sunday Telegraph article suggested energy bills would rise by £300 by 2020, based on a leaked government memo. The story appears to have confused energy bills with electricity prices.24

27. An edition of the BBC's Panorama asked "What's fuelling your energy bill?" Their answer can be paraphrased as "climate policies". The programme didn't mention that most of the recent rise in energy bills is due to rises in the price of wholesale gas.25 The BBC subsequently published a clarification26 which noted "We accept that it would have been helpful to our audience had this point been made more clear in the film and the website materials that accompanied it."

28. The CEO of British Gas cited figures for the effect of green policies on "power" bills (15% on an electricity bill, according to Ofgem), rather than energy bills (7% by the same source). This provided a headline in the sun blaming green taxes for price rises, despite gas accounting for 54% of the cost of an average British Gas energy bill.27

29. In November last year the Sunday Times printed a story covering an upcoming report from KPMG which found that “each member of the population almost £550” if “expensive wind energy plans” were scrapped in favour of nuclear and gas-fired plant.28 KPMG never released the report, citing concerns that it was “ripe for misinterpretation” by the media looking for a simple headline.29

30. There are also cases where the article is technically accurate but the headline creates a somewhat misleading impression. These include for example an FT headline: “Household energy bills to rise by £100 a year” (this means an increase in annual payments of £100, not an annual rise of £100), or a Telegraph headline: “Greener energy will cost £4,600 a year” (this fails to mention that the option which did not use greener energy was more expensive).

The impact of the media debate on public perceptions

31. Over the last nine months there have been a significant number of articles in the UK press about the impact of green policy measures on domestic energy bills30, including a series of prominent and misleading pieces.

32. Ofgem provide a breakdown of the costs that make up an average dual-fuel energy bill. Ofgem are independent of government, tasked with protecting consumers, and receive the data they use to calculate breakdowns of bills directly from the energy companies. Perhaps for these reasons their assessment is generally regarded as reliable. DECC also produce an assessments of costs which comes to similar conclusions to Ofgem.

33. However, these kind of analyses appear to be produced for researchers engaged with the energy field, not consumers. Consumers also receive very little information about how their bills break down from utility companies. Scottish and Southern currently puts limited information about the

24 Carbon Brief, Telegraph £300 energy bill headline makes the usual mistakes, 5 Sep 2011 25 Carbon Brief, Panorama on energy bills: a look at the sources, 8 Nov 2011 26 BBC Panorama, Clarification: What’s Fuelling Your Energy Bill, 31 Jan 2012 27 Carbon Brief, Did British Gas really ignore gas when talking about energy bills?, 24 Feb 2012 28 Carbon Brief. Have KPMG slammed renewables? Er, they’re not sure? 7 November 2011 29 BusinessGreen. KPMG refuses to release controversial energy report. 7 February 2012 30 See Appendix 1.

Page 173171 of 298 breakdown of costs to their customers on an energy bill, but they are the only one of the six biggest energy companies that do so31.

34. In our view, consumers are more likely to get information about the breakdown of costs in energy bills from the media than any other source. It seems likely that the inaccuracies in media coverage have had a negative impact on consumer awareness.

To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this?

35. Future energy prices for consumers will be determined by many different factors, including energy policy at the national and European level, consumption and production of fuel sources in different parts of the world, and the growth of new fuel sources like solar, wind power and shale gas. It's not only complicated to understand, it's difficult for experts to get it right in the first place.

36. The media tends to favour and promote explanations or projections which fit with their editorial line. Two significant unknowns are what is going to happen to gas prices over the next decade, and whether energy efficiency policy measures will be effective in reducing overall consumption and therefore bills. If articles do not convey the uncertainty in projections about future energy issues, this leads to coverage which suggests radically different conclusions.

37. Advocates against renewable energy tend to argue that shale gas will bring gas prices down, renewable energy costs will stay high32, and energy efficiency measures will be ineffective. On the other hand, supporters of renewable energy have tended to assume33 that over the next decade gas prices will go up - making renewables relatively less expensive - and energy efficiency policies are going to be effective34 - bringing down bills by reducing energy consumption.

38. For example, analysis by the renewable energy company RES, reported in the Telegraph, argued that dependence on imported gas could cost each household “more than £1,200”. This rested on the assumption that gas prices would rise over the next decade at the same rate as they have over the last ten years.35 Friends of the Earth undertook a similar calculation based on the same assumption, which was highlighted in the Daily Mail. Was this reasonable? There are grounds for caution - as UK gas prices have risen very significantly over the last decade, extrapolating the trend forward leads to high-end estimate.

39. Official bodies produce analysis on this subject. Ofgem37, DECC38 and the UK Climate Change Committee39 have all produced reports outlining future predicted trends in energy prices. We

31 The Guardian, MP calls for transparency over green taxes on energy bills, 7 Nov 2011, Scottish Power provide a breakdown which lists 'VAT and government obligations' but does not go into more detail. 32 The Telegraph, Chris Huhne is piling on the make-believe, 7 Jan 2012 33 The Guardian, Predicting energy prices is hard, but doing nothing is fatal, 24 Nov 2011 34 DECC, Estimated impact of energy and climate change policies on average household energy bills in year 2020 (infographic), Nov 2012 35 Carbon Brief, Gloom and doom on energy cuts both ways, 22 Feb 2012 36 Daily Mail. ‘Shop around to get the best deal - households told to ditch loyalty as profits per customer rocket from £15 a year to £125. 18 Oct 2011 37 Ofgem, Why are energy prices rising?, 14 Oct 2011 38 DECC. Estimated impact of energy and climate policies on prices and bills. November 2011.

Page 174172 of 298 have noted that these are increasingly presented in a way that is intended to be accessible for journalists and the lay reader - presumably in response to inaccurate media coverage.

40. But some of DECC's other statements may well have added to consumer confusion. For example, Chris Huhne predicted during his annual energy statement that energy bills in 2020 would be “7% lower than they otherwise would be” as a result of Government policies. This obscures the fact that DECC projects domestic energy bills will rise 3% by 2020, and that energy bills will go up by 2020 for two thirds of government households, as a result of Government policy.40

Is greater consumer education needed and if so, who should take responsibility for this, who should deliver it and how should it be delivered

41. As we have outlined in the previous question, both DECC and Ofgem have responded to a degree in this debate - with varying levels of swiftness - and it is good to see materials produced that specifically engage with the kinds of questions that are being posed in the press.

42. DECC has produced the online ‘energy calculator’41 and is also now publishing blog posts which comment on inaccurate interpertations of their analysis.42 This is helpful in our view as it allows DECC's analysis to be debated and scrutinised, and places something of a restraint upon the most inaccurate reporting.

43. The figures produced by Ofgem seem to be well respected and the closest the energy bills debate has to an agreed factbase. Ofgem however is not a public facing organisation and may not be well suited for the task of educating consumers.

44. We have three suggested recommendations: that the energy regulator or a similar ‘neutral arbiter’ be given the job of communicating these issues to consumers rather than just to Government and industry and enabled to do so; that energy companies be encouraged or required to communicate more clearly about how their bills break down; and that care it taken to ensure changes to the regulation of the press currently being considered limit the promotion of inaccurate coverage of this topic.

March 2012

39 Committee on Climate Change, Household energy bills - impacts of meeting carbon budgets, December 2011 40 The Guardian. Higher bills for majority despite government reassurance. 8 February 2012. 41 DECC. 2011. 2050 Pathways Analysis 42 See for example: DECC. 2011. The true cost of energy and climate change policies on bills

Page 175173 of 298 Written evidence submitted by Energy UK (CE 24) Executive Summary

In the next decade, consumers will see significant changes to the way in which their gas and electricity are provided. The Green Deal and Energy Company Obligation should help households become energy efficient, and the new generation of smart meters will allow consumers to take control of their energy consumption, as well as replacing estimated with accurate bills. Following the Queen’s Speech in May 2012, a further Energy Bill is also expected which will outline reforms to the electricity market, with the aim of ensuring investment in Britain’s transition to a low-carbon future, as well as guaranteeing that our supply of energy is secure and affordable.

Change could also follow from Ofgem’s Retail Market Review (RMR), which seeks to encourage greater consumer engagement in the energy market. Note that in measuring consumer engagement, caution must be taken in looking at switching levels as the sole measure of success. Whilst the churn rate is an important metric, it is not the only one. Switching between payment methods and tariffs demonstrates engagement and can bring significant advantages to the customer, without any change of supplier.

With so much change on the horizon, consumer trust will be crucial. Energy companies recognise that they need to work hard to win back the trust of consumers and are engaging in a wide range of initiatives in order to achieve this.

Energy UK’s members have also been finding new ways of working with other stakeholders to help support their customers. Following the Energy Summit in October 2011, the energy suppliers worked closely with the Department for Work and Pensions and provided funding for letters to be sent to around 3.8 million low-income / vulnerable customers, with the aim of encouraging them to take up the help available to them, including free or heavily subsidised insulation.

Suppliers also made a commitment to contact their customers who paid by quarterly standard credit to check whether they were on the best tariff for them. And an additional communication to customers was agreed advising them of potential savings from switching to Direct Debit. Energy UK and its members were also pleased to support Big Energy Week (January 2012) which was coordinated by Citizens Advice, with the message of Check, Switch, Insulate to Save.

Energy UK will continue to work with Ofgem, DECC, and consumer groups to build confidence in the market. It will be important that any changes introduced are grounded in evidence and work in the best interests of the consumer.

1. Energy UK response

Trust

1.1 Consumer engagement is important in realising the benefits of new programmes such as the Green Deal and Smart Metering. Improving the customer experience now will facilitate such future engagement. 1.2 Energy UK’s members are taking a number of voluntary steps to increase trust in the industry. There is widespread agreement on the need to do so fully understanding the underlying drivers of trust will help ensure the appropriate remedies.

Page 174176 of 298 1.3 In its Retail Market Review, Ofgem states that “research conducted since March supports our findings about the link between perceptions of supplier behaviour and consumer engagement”1. Ofgem thus implies that customers might not distrust suppliers because of their actual behaviour, but rather because of their perceived behaviour. Energy UK recognises that companies’ behaviour can have an impact on levels of consumer engagement and trust, but a more informed public debate on the issue would also be helpful in promoting the trust agenda.

1.4 The media plays an important part. Statistics and information can be taken out of context and used to portray an incomplete and distorted picture of the energy industry. This is particularly common in debates about pricing, which is not well understood among the wider public.

1.5 Britain has one of the most competitive energy markets in the world, and suppliers have continually delivered some of the cheapest energy in Europe to their customers – according to DECC’s recent statistics, Britain has the third lowest electricity costs and lowest gas costs in the EU152. This tends not to be reflected in the media or political debate.

1.6 The latest data, published in March 2012 by the energy regulator Ofgem, found that the rolling average annual industry profit from supplying gas and electricity to the home was £80 a year, on an average bill in the region of £1,3003. However, an independent analysis from NERA Economic Consulting which looks at the costs in more detail, show that energy suppliers were earning an average annual margin of about £24 per electricity-only customer, £49 per gas-only customer and £50 per dual fuel customer. These margins correspond to 4%, 7% and 4% of the respective average annual bills4.

1.7 Close scrutiny of company profits is understandable at a time when global energy prices have been rising – as supply struggles to keep up with growing demand – and consumers want reassurance that prices are fair. As Ofgem noted in their 2011 factsheet on prices, higher wholesale gas prices have been the main driver of increasing energy bills over the last eight years5. Becoming more reliant on imported gas has meant that British gas prices have become increasingly influenced by global events.

1.8 The wholesale cost of energy accounts for just under half the amount that consumers pay on their bills. The remainder is taken up with costs including: networks, environmental/social obligations and taxes, metering, and margins. Some companies include this information on their bills / annual statements in order to make their customers aware of the breakdown.

1.9 Perceptions relating to the state of competition are further entrenched by use of the common phrase, “the Big 6”. There are other players, big and small, in this sector.

1.10 Since Ofgem’s consultation on Findings and initial proposals closed last year, the Energy Retail Association (ERA) and Energy UK have been working with suppliers and consumer groups to produce a standardised “key facts” template that will help customers compare tariffs. The aim of this work is to agree common categories of information and standardised terminology to describe each tariff. Suppliers could then display this where appropriate (such as on their websites) to assist customers who are exploring their options before committing to a particular tariff.

1 Ofgem, RMR, p.52 2 DECC, Quarterly Energy Prices, December 2011, http://www.decc.gov.uk/en/content/cms/statistics/publications/prices/prices.aspx 3 Ofgem, Electricity and Gas Supply Market Indicators, March 2012, http://www.ofgem.gov.uk/Markets/RetMkts/rmr/smr/Pages/indicators.aspx

5 Ofgem, Why are energy prices rising?, October 2011

Page 177175 of 298

1.11 The ERA has already led on a range of initiatives to support consumers such the Safety Net, which commits suppliers to never knowingly disconnect a vulnerable customer. (Extra protections were added in 2011 to take account of smart technology). The ERA constantly keeps the Safety Net under review to make sure that it works for customers, and Ofgem has said “We welcome the ERA’s work in this area and the clear commitment from suppliers to protect vulnerable customers from disconnection.”6

Smart meters

2.1 Energy suppliers are at the forefront of the delivery of smart metering and recognise that the consumer will be at the heart of the roll-out. And as smart metering becomes standard in homes across Britain, consumer engagement and trust in the market and in suppliers will be paramount.

2.2 Research carried out by Ipsos MORI in 2011 showed that 64% those surveyed supported the installation of smart meters in the home, with bill payers feeling that they would benefit from being given greater control of their energy use. This compared to 9% who were opposed7.

2.3 In particular, the national survey revealed younger bill payers from lower social grades to be the most receptive to information about other products and services. They were the most interested in hearing about energy efficiency products. The younger bill payers interviewed expressed high levels of interest as they were keen to find ways of reducing their bills and were less likely than older bill payers to have already installed energy efficiency measures or safety products.

2.4 Research has shown that consumers recognise the potential benefits of smart meters so it is vital that the roll-out itself runs smoothly. There is, therefore, a clear need for a consumer engagement programme about the roll-out to raise awareness.

2.5 In order to provide energy consumers with information about what data is collected from smart meters and what it will be used for, a set of privacy commitments has been developed. They also set out rights and choices that apply to everyone in relation to smart metering information.

Ofgem: Retail Market Review

3.1 As part of their Retail Market Review, Ofgem found that that further action was needed to make energy retail markets in Great Britain work more effectively in the interests of consumers. By changing tariff structures and the ways in which consumers buy their energy, Ofgem hope that this will increase engagement in the energy market.

3.2 Ofgem is right to recognise that the “removal of dual fuel discounts from standard tariffs carries a risk of frustrating a significant number of consumers and possibly hampering our attempts to promote engagement”,8 and is also right to say that “great care will be needed in communicating” the reforms.

3.3 Ofgem also believes that almost all consumers will benefit from the proposals because tariffs will be easier to compare and understand. Those disengaged consumers will theoretically benefit from tariff

7 Ipsos MORI, Consumer views on smart meters 8 Ofgem, RMR, p. 23

PagePage 178 176 of of298 298 consolidation because they may well be on higher tariffs. However, there is a risk that those who are active in the market and seeking out deals will have their incentives to engage reduced through finding fewer benefits of switching.

3.4 Given that trust in the sector is not high, there is a potential for customer backlash against the prohibition of a variety of popular discounts, affinity deals and other benefits. Questions remain about out how Ofgem intends to communicate its reforms to customers and take responsibility for the impact that they have, and over what timescales. This would not be a simple process so development would need to start early.

3.5 The need to resolve tensions between RMR and the rollout of smart meters is vital. We understand and respect Ofgem’s rationale that “Consumer engagement is key to realising the benefits of smart metering; improving customer experience now will facilitate such future engagement”.9 However, there is potentially a risk of over-simplifying and deterring consumers from taking up innovative time-of-use tariffs because they are reluctant to be tied into something they have not tried before. We would welcome Ofgem’s views on how significant it considers these risks to be. A “roadmap” from RMR to smarter markets may be required.

3.6 As part of its RMR, Ofgem commissioned an independent review of energy company accounts which it found to be “fair and appropriate”10. Transparency such as this is to be welcomed, and Energy UK hopes that their findings will mark a turning point in the work underway to rebuild trust in the sector, providing reassurance to consumers that accounting information is appropriate, with no evidence of distortions of company profitability.

3.7 Also as part of the RMR, Ofgem is proposing a major shift in its regulatory approach – towards Principles-Based Regulations. By introducing binding Standards of Conduct, the aim is to improve the treatment of customers across the industry and promote engagement. Energy UK supports these aims, and believes that the new approach could in theory deliver real benefits to consumers, but only if changes are first seen in other areas, particularly in the relationship between Ofgem and suppliers. Energy UK would like to help effect those changes, including building mutual trust, by encouraging dialogue between suppliers and Ofgem. As a first step, the ERA submitted a paper in response to the RMR that was intended to stimulate this discussion11.

3.8 Energy UK will continue to work with key stakeholders to make sure that the final plans match the aim of a simple and competitive retail energy market in which everyone can have confidence.

March 2012

9 Ofgem, RMR, p.34 10 Ofgem, http://www.ofgem.gov.uk/Media/PressRel/Documents1/PressReleaseBDO.pdf http://www.energy-uk.org.uk/publication/finish/49-era-response-to-ofgem-retail-market-review/454-era-final-standards-of-conduct-response-23- february-2012.html

PagePage 179 177 of of298 298 Written evidence submitted by EDF Energy (CE 25)

Executive summary

• EDF Energy was the first major energy supplier to announce a price decrease this year, following our decision to freeze prices last winter. We have been the cheapest major supplier on average for standard dual fuel customers since October 2011. EDF Energy is currently the cheapest major supplier for standard dual fuel customers in England and Wales.

• EDF Energy’s experience suggests that consumer’s have little knowledge of the energy industry and their appetite for this knowledge to increase is very low

• Consumer engagement is also low due to both lack of knowledge and industry complexity

• We support Ofgem’s Retail Market Review as it goes some way to address the issues of engagement but we think it could go further

• EDF Energy is committed to tackling mistrust in the industry and will shortly be announcing our plans in more detail. These will go beyond what the industry has done before and we believe provide an important milestone as we all work together to rebuild trust. We will continue to keep the Committee updated on our activity in this area.

EDF Energy is committed to consumer engagement

1. We recognise that currently energy prices, and the operation of the energy market, are matters of serious public and political concern. We also recognise that the industry has not been very good at communicating with customers on these issues and that this has led to mistrust. It is vital that we address this.

2. We know that energy companies have a long way to go to rebuild trust with the public. EDF Energy has already made steps to rebuild trust. As well as offering customers fair, competitive prices, EDF Energy has:

• Simplified the structure of our tariffs so they are easier to understand. We would like to go further and remove the need for standing charges entirely. We have made a proposal in our Retail Market Review response that would enable this to be put in place without creating competitive advantages and disadvantages between suppliers.

• Been supportive of Ofgem’s plans to implement a simple tariff structure but believe it should go further and standardise the structure across the industry for all tariffs and products on offer and remove regional variations in price.

• Called for improvements to the switching process to make it easier for customers to compare tariffs, and believe that Ofgem should operate an independent not-for-profit switching service.

Page 180178 of 298 • Offered free insulation to anyone suitable who does not already have it – whether they are a customer or not.

• Stopped unsolicited doorstep sales.

• Continued to offer our Energy Assist tariff, which provides a discount to households in fuel poverty.

• Established a partnership with Citizens Advice to offer independent debt advice to customers in difficulty.

• Delivered a number of wider projects to support customers and households in fuel poverty including over £17million of support to the independent EDF Energy Trust Fund since 2003, which has enabled it to make over 22,000 awards so far.

About EDF Energy

3. EDF Energy is the largest generator of low-carbon electricity in the UK, producing around one- fifth of the UK’s electricity and supplying gas and electricity to more than 5.5 million business and residential customer accounts. The company has sites across the UK including nuclear power stations, coal and gas-fired power stations, customer contact centres and wind farms (both off shore and on shore), and employs over 15,500 employees

EDF Energy’s response to your questions

Q1 “How “energy literate” are consumers in the UK? For example, are most consumers aware of how much their bills vary according to usage? Are terms such as “kWh” understood by most consumers?

4. The energy market is still a relatively low-engagement category for consumers, which is made worse by the confusion that surrounds the way that energy is measured, and how bills are calculated.

5. In a recent telephone survey conducted by ICM (February 2012) 33% of consumers were unable to say how much they spent on electricity or gas in a year. Likewise the terminology for measuring energy is confusing – although consumers do know that kWh is one of the main measurements, they have no comprehension as to what this equates to.

6. From our interactions with customers, we have found that consumers have some understanding of the relationship between energy usage and their bills. For example, it is recognised that the winter period is when more energy is consumed, or that leaving your heating / lights on all day will result in much larger bills. However understanding of the degree to which different energy devices impacts bills is still poor. Research has identified that there were conflicting views as to which energy devices used the most energy – most cited ‘heating’, but others mentioned washing machines, tumble dryers, dishwashers and lighting.1

7. There has been some improvement in understanding as a result of the launch of Energy Display Devices however the majority of households are still unable

1 Understanding consumer needs of Smart technology, Illuminas Q4, 2010

Page 181179 of 298 to say with much certainty what impact on their bill there would be of changing their energy behaviour.

8. EDF Energy has already started work to improve consumers’ awareness of their energy use to encourage further engagement with the energy market. We are currently looking at ways to simplify the way costs and consumption are explained within our bills. In addition we are looking at ways we can be better at communicating with our customers about their energy consumption. We are in the process of looking at how we can simplify our bills so that they are clearer in explain consumption and costs to consumers, and also how we can better communicate on energy consumption.

Q2 To what extent are consumers aware of the different components that make up their energy bills and the relative contribution of each aspect? (e.g. wholesale costs, transmission and distribution charges, environmental/social policies and VAT)

9. There are two parts to this: to what extent are consumers aware, and perhaps more importantly to what extent do they want to be aware.

10. Based on industry wide opinion there is relatively little knowledge amongst consumers regarding how bills are constituted, which is also linked to limited awareness of what an energy company does and the processes involved in delivering energy to households. Most consumers are only aware of the touchpoints they experience (i.e. billing, meter readers, call centres) and have little spontaneous awareness of the upstream activities involved (i.e. generation, transmission, distribution).

11. When bill breakdowns have been tested with consumers, there is only limited engagement with this information. It has been found that consumers want specifically relevant information and whilst sometimes this information is viewed as interesting it is not meeting a core customer need.

Percentage breakdown of costs incurred for the supply of our residential customers, based on average consumption across all payment types and regions. Correct as at 31 December 2010 and consistent with 2010 Ofgem segmental reporting.

Page 182180 of 298

12. Consumers are often surprised at the comparatively low profit margins, however this is often in contrast to what is reported in the media, and in conjunction with public opinion of energy suppliers, this can lead to a mis- representation of disproportionate profits.

13. More complex breakdowns such as the one below showing what drives energy prices over time are too confusing and intimidating, and exceeding the amount of information that consumers want to receive.

Electricity and Gas Supply Market Indicators, Ofgem, January 2012

14. EDF Energy recognises that there are challenges in communicating this information to customers but is determined to make this information more transparent and accessible for customers. We are currently working with our customers to devise the best way to communicate this information.

Q3 To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this?

15. Consumers’ awareness of future projected levels of energy prices is predominantly driven by the media. For the last five years EDF Energy’s Consumer Insight team has tracked on a monthly basis whether consumers think prices will decrease, stay the same, or increase. Throughout this time, the majority of consumers think prices will increase – on average in 2010, 76% of consumers believed that prices would increase. In 2011 this figure was 86%.

16. It is worth noting that even when price decreases are announced, the proportion of consumers who believe that energy prices will increase only drops to around 50% - the view that energy prices will always increase is firmly entrenched in consumers’ minds.

17. When prompted some consumers have an awareness that changes in the wholesale price impacts the price they pay for their energy, and that these prices fluctuate over time. However, few know, or are particularly interested

Page 181183 of 298 in, what really drives these changes, and this does not appear to impact their overall perceptions that prices are set to increase in the future.

Continuous price tracker – ICM 2011 (1000 consumers per month, representative of adults in the UK

Q4 What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary?

18. We believe that one of the major barriers to switching is the current complexity in the domestic energy market. This complexity is created in part through every supplier having different pricing structures, with standing charges or tiered pricing, combined with discounts that can be a fixed amount, fixed percentage, or capped. In addition, regional prices lead to consumers being unable to see a simple price comparison, other than through switching sites. National unit prices with no standing charge would facilitate the simplest comparison possible for consumers and could be made widely available through national media channels.

19. We believe that Ofgem’s proposals under the Retail Market Review will make progress in simplifying some of the current complexity; however we believe it should go further in extending the proposed simplified structure across all tariffs on offer and not just apply it to standard evergreen tariffs. We believe that Ofgem should go further and remove standing charges so that suppliers compete only on a single national unit rate for each product or tariff, with consumers only charged per unit of energy used. This will require Ofgem to remove the underlying drivers of regional pricing by providing a clearing house that removes regional cost differences for domestic consumers, so that

Page 182184 of 298 suppliers only charge per unit of energy used. This would deliver the simplest, most transparent solution, enabling consumers to engage and switch with more confidence.

20. The presentation of national unit prices in standard comparison tables will lead to increased consumer confidence in the decision making process and could help encourage consumers to switch. We see various unintended consequences if prices are quoted in a £ per month format and strongly believe that prices should be quoted in £ per annum. The presentation in £ per month risks significant confusion for consumers with regards to inconsistency with direct debit amounts and the seasonality of energy use resulting in unexpected differences with actual bills, leading to increased mistrust. In addition research shows that a higher proportion of consumers will switch when a savings message is presented in £ per annum rather than £ per month.

21. We would also like to see an Ofgem sponsored independent switching site. Ofgem’s research, together with our own, shows that this is what consumers want. The service must be available through the internet, but most importantly for vulnerable consumers, also by phone and post. The service should be run on a not-for-profit basis and paid for by all energy suppliers. This will increase consumer confidence that impartial advice is being given when using a tariff comparison service.

22. Simplicity should also extend to annual statements, bills and tariff information labels. Ofgem’s proposals on consistent, simple terminology and formats should further enable consumer understanding and confidence, reducing this barrier to switching.

23. However, we disagree with Ofgem’s proposal to prohibit marketing materials with price change notifications. We believe that marketing materials represent an opportunity to encourage consumers to engage in the market. Prohibiting their inclusion could actually lead to reduced levels of consumer engagement and switching.

Q5 Will Ofgem’s proposals (including on standard tariffs and greater transparency of information published by energy companies) help to increase public trust in energy companies?

24. We believe that public trust in energy companies has been reduced partly as a result of the current complexity in the energy market. Increasing simplicity for the consumer should therefore be an overarching principle that guides all of Ofgem’s proposals.

25. The simpler, more transparent, approach to tariffs outlined above will lead to increased consumer confidence for consumers and trust in the market. Simplification and standardisation of how and when companies communicate to consumers and the terminology used will increase energy literacy, reduce confusion and therefore increase trust.

26. We believe that Ofgem has a role in supporting energy companies in their efforts to increase consumer trust in the market. We welcome the proposal to introduce the principle based standards of conduct, but this must be accompanied by a constructive two stage approach to resolving potential compliance issues. This would require Ofgem to engage with any supplier

Page 183185 of 298 perceived to have breached the standards in private, before moving to formal public investigations if any warranted corrective action and resolution is not forthcoming. This will avoid premature publication of formal investigations before suppliers have had the opportunity to respond to and, if needed, rectify any issues, reducing the risk of unnecessarily undermining public trust in energy companies. We believe this constructive approach should be extended such that Ofgem facilitates the sharing of industry best practice to proactively improve standards across the industry.

27. Currently many consumers believe that all energy suppliers make vast profits. This issue has been aggravated by inaccurate reporting of ‘indicative’ profitability. Fair and reflective reporting of real supplier profitability, supported by high-profile consistent messaging from Ofgem, would lead to improved consumer understanding of actual supplier profitability. This would also enable more transparent comparisons with other major retail businesses such as supermarkets or banks and a wider understanding of a level of profitability that would be considered reasonable.

28. The continued use of the term “big 6” is also misleading. The term perpetuates the misconception of a “club” working against consumers, whereas, in reality, only two main suppliers have delivered sustainable profits in their residential business. Reporting that highlights the spectrum of profitability, supported by statements that this is audited and correct, will increase consumer awareness of energy companies as a non uniform group and the true picture of profits being made in the industry.

Q6 To what extent are consumers aware of policies such as the Green Deal, smart meter roll out and Ofgem’s Retail Market Reform that could affect the way they use energy in their homes and their engagement in the market? And what are their perceptions of the schemes?

SMART METERS

29. Although ‘claimed’ awareness of Smart Meters is strong (66% of consumers claimed they were aware of smart meters in a study conducted in October 2010) 2, we know that the reality is quite different. Given the confusion created by energy monitoring devices being referred to as ‘smart’ and specific programmes being introduced such as British Gas’ ‘Energy Smart’ programme which uses the word ‘smart’ but doesn’t involve a smart meter, it is understandable why claimed awareness is so high. In fact, in the same study only 2% of consumers correctly identified that Smart meters refer to ‘meter readings being supplied directly to the energy provider resulting in accurate bills’.

30. An Ipsos Mori studied commissioned by the ERA 3found that there is a clear need for a consumer engagement programme about the roll-out to raise awareness amongst consumers. Consumers recognise the potential benefits of smart meters so it is vital that the roll-out itself runs smoothly so this can be observed. For many members of the public, engineers are a welcome source of information and advice about potential products and services that are relevant to individual consumers

2 Quantifying the consumer needs of Smart technology, Illuminas Q4 2010 (1600 consumers – 800 EDF Energy customers, 800 non customers) 3 IPSOS Mori; October 2011, Commissioned by ERA

Page 184186 of 298

31. Smart Meters are seen as a means of access to engagement with consumers on energy. However, given the interest is driven by the basic needs (accurate billing, viewing, appliance consumption) consumers find it difficult to envisage the longer term possibilities.

32. EDF Energy is a partner in the Low Carbon London Smart Meter Trials and as part of this trial (January 2012), 56% of consumers felt that they will save money by being on the trial. However, on average their expected saving was only 10%, showing that perceived change to energy usage would be minor.

GREEN DEAL

33. Awareness of the Green Deal is very low. In December 2010 EDF Energy carried out customer research by engaging with a number of discussion groups across the country and found that there was no prior knowledge of Green Deal amongst any of those sampled.

34. However, once the concept was explained consumers did feel that the Green Deal was a means of becoming more energy efficient at home. The concept of more affordable ways of financing expensive energy efficiency measures is welcomed. In particular, the removal of up front costs, which is so often a principal barrier, captures attention and is seen as genuinely innovative.

35. More recent research4 by YouGov from September 2011 reflected these findings: 54% of respondents had misunderstood the purpose of the scheme and did not realise its purpose was to fund energy efficient improvements. Answers as to the purpose included 14% believing it was to save national forest and outdoor areas and 9% thought it was to develop and increase the number of hybrid cars in use.

36. Customers must be at the heart of Green Deal for it to succeed, and they must have confidence in the scheme, based on clear information on the final design and systems which have been fully tested to ensure the best possible experience. This is a key part of restoring trust in the energy industry and helping customers to understand their energy use and to engage in the market.

37. However, more research has also highlighted the lack of understanding of the benefits and need for a greater understanding of the energy efficiency level of individuals’ homes and the benefits that can be realised through the installation of further measures. For example, research by Ernst and Young5 in a report published in November 2011 had the following findings:

38. The vast majority of consumers polled “appear to have unrealistic expectation with 79% believing their homes to be either very or fairly efficient with over 55% of the 65+ age bracket believing their homes are very efficient”; 39. More than two-thirds of consumers (68%) are completely unaware of the savings to be made from loft insulation and low energy lighting, two of the

4 http://www.ibtimes.co.uk/articles/20110915/public-lacks-understanding-of-green- deal.htm 5 http://www.ey.com/Publication/vwLUAssets/Green_Deal_Consumer/$FILE/Green_De al_Consumer.pdf

Page 185187 of 298 most commonly used low carbon technologies. This is despite significant support through the Carbon Emissions Reduction Target and predecessors for a number of years.

40. However this same research highlighted that “The biggest opportunity to persuade consumers to invest is the delivery of a stronger financial incentive, with 57% stating that this would encourage them to invest in energy efficiency measures.” And therefore Green Deal represents, if effectively implemented, could contribute to the Government’s ambition of a step-change in the provision of energy efficiency measures across al relevant buildings.

41. There are now only months until the expected October launch date and DECC’s own research6 commissioned from IPSOS Mori, published in November 2011, highlights that there are significant potential barriers to this uptake such as the cost-effectiveness of the scheme and potential interest rate payable on Green Deal Finance. These are issues where further clarity is urgently required.

Q7 What are the potential implications of a lack of consumer awareness in these areas?

42. If consumers are not engaged or aware of initiatives such as the Green Deal, Smart meter roll out and the RMR, then clearly this will affect the take-up of these measures. The low levels of consumer trust within the energy industry are likely to result in consumers being mistrustful of these schemes, particularly if the media fuels public concern around smart meters (for example, concerns voiced over data protection) or the costs of implementation. Ofgem should be clear and transparent with consumers that these schemes are Government supported, provided by their energy suppliers and are designed to deliver clear benefits.

43. If take-up is low, then the overall benefit to cost ratio of these schemes will be reduced, leaving consumers paying for implementation (as the cost of these schemes will in effect be borne by all consumers). Those who actively resist having a smart meter installed will take a share of the costs (proportionate to their energy usage) but will not see any benefit. Those who take a smart meter but do not engage with energy consumption information to change behaviour will only get the default benefits e.g. no estimated bills, remote reads, remote switching between pre-pay and credit and time of use tariffs.

Q8 Is greater consumer education needed and if so, who should take responsibility for this, who should deliver it and how should it be delivered?

44. As detailed above, we believe increased consumer engagement is key to ensuring the success of the retail market reforms and also the success of new initiatives such as Green Deal and Smart metering roll out.

45. Greater consumer education is needed to enable this engagement by providing information on the benefits of these schemes, and also to assure consumers that suppliers are not just doing this to increase profits (as this will be the assumption from many consumers). A collaborative approach

6 http://www.decc.gov.uk/assets/decc/11/consultation/green-deal/3505-green- deal-consumer-needs-wants.pdf

Page 188186 of 298 between suppliers, consumer groups, the media and the Government would be most effective, as we believe all parties have a part to play.

46. As a supplier we have a direct relationship with our customers, so information flowing from us is essential to increase understanding. However, current low levels of consumer trust risk the effectiveness of this message if delivered in isolation by suppliers. Government, Ofgem, suppliers and consumer groups all have a responsibility in educating consumers, to ensure that one positive message reaches customers and builds engagement and trust in the energy market.

47. A wide range of methods, including social media, should be used, to suit the needs of customers and ensure vulnerable consumers are not excluded.

Q9 What impact does the media have on public perceptions of energy bills?

48. We know from an in-depth research project conducted with consumers in January 2012 that the media plays a powerful role in driving consumers’ perceptions of energy companies on the subject of trust.7 The media can use powerful and emotive language that has a real impact on public perceptions, making people wary and undermining their opinion of energy companies. As a result the general public’s perception is that energy bills are unfair and too high, and that energy companies are making excessive profits.

49. The results of a recent quantitative study (Dec 2011) shows the proportion of consumers who have a negative image of the energy industry:

Deceitful and cheating – 45% of consumers agreed Inefficient and inept – 42% of consumers agreed Greedy and cruel – 53% of consumers agreed Complex and confusing – 74% of consumers agreed

50. The extent the media plays in guiding consumers’ perceptions of the energy market can also be observed by looking at the proportion of EDF Energy customers who say they were prompted to leave as a result of negative media coverage. During 2011 approximately 20% of customers indicated that media coverage had prompted them to look for a new provider. 8

Q10 What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies?”

51. In the wider context of the UK’s transition to a low carbon economy, the increasing cost of environmental policies included within energy bills should be made clear to consumers. These costs should be minimised by incentivising investment in the most affordable low carbon energy supplies and maintaining competitiveness for sustainable growth.

Pros 52. For environmental programmes, the 'polluter pays' principle means that there is some justification for a levy on energy consumers.

7 Understanding consumers’ perceptions of trust in the energy market, Acacia Avenue 2012 8 Loss tracker, Jigsaw 2011 (500 Lost EDF Energy customers a month)

Page 189187 of 298 53. Charges on a per unit basis would adhere more closely to the principle as higher energy consumption would result in a higher levy; however, there would still be no differentiation between low carbon/renewable energy consumers and high carbon emitting consumers. 54. For social policies, savings delivered through energy bills guarantees that the support goes towards energy costs, unlike the Winter Fuel Allowance, and helps to lift households out of fuel poverty 55. One current challenge is the lack of transparency for consumers of the various levies currently recovered in their energy bills, which engenders mistrust in domestic energy prices. If levies continue to be used to pay for environmental and social programmes then a more transparent mechanism would enable consumer understanding and increase engagement in the government’s environmental and social policies. 56. Utilising the experience and capacity of suppliers to deliver the programmes is likely to be the most cost effective and efficient implementation approach to meeting policy objectives.

Cons 57. The current approach of funding programmes, such as the Warm Home Discount and environmental schemes, through energy bills does not take into consideration people’s ability to pay. Depending on how costs are recovered by suppliers vulnerable customers will also be bearing the cost of this type of programme. 58. Recovering the costs through levies on bills is also likely to increase the overall cost of implementation, as each supplier has to develop and maintain individual systems and processes to administer the cost recovery, the cost of which then has to be recovered from consumers. 59. Funding through general taxation would enable implementation of a more stable long term strategy. The current approach of levies on energy suppliers (and therefore energy bills) increases the risk of volatility in the delivery of environmental and social programmes as the transition from one scheme to the next can lead to uncertainty for suppliers, consumers and service companies. This is demonstrated by the current uncertainty surrounding the transition from CERT and CESP to the ECO scheme at the end of 2012. 60. As above, the current approach of hidden levies within energy bills reduces consumer understanding of the cost of social and environmental policies and increases the risk of consumer mistrust. More transparent charging of policy costs and delivery of benefits will lead to increased consumer engagement in addressing the key environmental and social issues.

EDF Energy

Page 190188 of 298 Written evidence submitted by John Oddi (CE 26) Summary: DECC are promoting Green Deal as a wonderful solution to the Climate Change/Energy Efficiency in UK Homes etc, the Minister can barely contain his excitement, it is not the solution, quite to reverse and DECC refuse to listen or engage with anyone that’s holds a view contrary to theirs: DECC are promoting a scheme where consumers will be encouraged to believe goods purchased via GD are FREE, they are not, in fact consumers will pay double the open market value of these goods, this as they will be forced to pay an arrangement fee of circa 20% to a Green Deal Provider (GDP) (energy companies and national retailers like Tesco and Homebase) add consumers will be paying say 7% interest for 25years. Its is not FREE, consumers will likely get ripped off, a consumer purchasing goods without Green Deal will immediately see the cash benefits from energy saved and pay only the true market value of the goods, not DOUBLE, as with Green Deal. Example

£10,000.00 purchase of energy saving technologies

£2,000.00 Vat payable to HMRC

£12,000.00 this would be the normal price of these goods without Green Deal

Add

£2,000.00 additional costs for Green Deal provider (20% assumed)

£400.00 additional VAT payable to HMRC on the Green Deal providers costs

£14,400.00 Approx cost for same goods under Green Deal (increased by 20%)

Add

£10,000.00 Approx cost of Green Deal interest over 25 years (assumed 5%) proving that the Golden Rule simple doesn’t work.

£24,400.00 Approx cost of the same goods using Green Deal inc Interest

DECC have structured the GD encouraging consumers to believe the purchaser of a property with Green Deal will willingly take on the Green Deal debt, why would they, when they can simply purchase a property without Green Deal debt? It’s clear beyond any doubt that the owner of a property with Green Deal debt will have to repay the Green Deal debt in full plus interest or reduce the sale price of their property accordingly; consumers are not being so advised.

Page 191189 of 298 DECC have not made clear to consumers that were they to sell their property, they could, say even after 7 years of making Green Deal repayments owe to Green Deal more than the open market value of the goods they first purchased seven years earlier, this when some of the goods will be reaching the end of their useful lives. DECC have structured the Green Deal so consumers are in effect receiving extended warrantees and paying double for the privilege, extended warrantees are something that successive Government’s have consistently expressed concern about, now the Government can be seen to be promoting a similar scheme. The OFT have expressed concerns and are currently considering whether to carry out a public piece of work looking at the domestic energy efficiency sector. The concerns of the OFT are well founded. DECC have structured the Green Deal is such a way that it will create a distorted and anti competitive market, this will destroy tens of thousands of jobs as SME’s all over the country are excluded from their natural markets. Here the Minister has found a way to use subsides to destroy non subsidised jobs, frankly incredible. The harm to the UK economy will be immense. The Ministers response here is a. find your work in the new value chain I am creating or b. The Green Deal must happen. DECC in a desperate attempt to make the “Golden Rule” apply are suggesting Double Glazed products will last between 25 and 40 years, simply they wont and DECC are also locking people into “old” technology for 25 years plus preventing renewal and improvement and thus causing long term harm to energy efficiency and the environment. DECC have structured the Green Deal in a way that will likely breach FSA regulations, it does not meet the FSA outcomes, treating consumers fairly, ensuring consumers deal with companies where the fair treatment of customers is central to the corporate culture, consumers are provided with clear information, consumers receive products that perform as they were led to believe at point of sale etc. There are also similarities between DECC’s Green Deal and the mis-selling of PPI, a scandal still very much in the headlines. DECC have spent Millions of pounds of tax payers money to arrive at a Green Deal scheme that is nothing more than a very expensive and complex “buy now, pay later and pay more” finance offering. A scheme that will lead to consumers receiving poor value and that will harm the UK economy and destroy jobs.

Many SME’s are already losing orders and jobs to the Green Deal, examples

a. An increasing number of consumers are saying “no I’m waiting for the Green Deal then I can get these goods FREE of charge”

b. Crystal has lost concessions it has operated in Homebase for 20 years, this as Homebase gear up for the launch of Green Deal to the exclusion of SME’s like Crystal

DECC with the consequential works and PAS have introduced more and more RED TAPE, this contrary to the Prime Ministers pledge at the general election.

1.

Page 192190 of 298 a. Whilst understanding Gov’s ambitions to improve the Energy Efficiency (EE) of UK properties, we don’t believe that the current Green Deal (GD) proposals are going to do the job. b. The current proposals are likely to lead to massive market distortion and work to the disadvantage of consumers and SME’s. c. The complexity of process to be introduced by the GD proposals will seriously slow down consumer purchase decisions and their implementation as GDP’s and Energy Companies become involved. d. The proposals will significantly increase costs to consumers for little apparent benefit. e. Consumer markets that are currently working very well, such as double glazing, will be threatened as plurality of installation supplies is replaced by a relatively few large national GDP’s controlling all GD installation work. f. Gov could achieve its ambitions without GDP’s; by allowing qualified GD installers (accredited to PAS 2030) to access GD loan funding.

2. The GD consultation process: a. The official consultation was launched by DECC 2 months late in early December ‘11. Only 6 weeks were allowed for responses, including Xmas/NY. b. The nature of the consultation document (62 fixed questions with the option to forward other ideas as Q63), allowed for no deviation from the basic proposed GD structure, including ECO. Those responding formed the opinion that this was not a genuine consultation exercise but rather an exercise to be used to justify the DECC GD proposed structure. This is true of all DECC consultations. c. This opinion has been borne out by our experience in practice. Despite a 1 hour meeting with Greg Barker and sending numerous letters to the Minister on both GD and FITS, there is no evidence that these meetings and letters have served to influence DECC policy at all. The Minister reneged on undertakings he gave at our meeting. d. Reports received from large National organisations like Pilkingtons, who have had several meetings with Gov over the last 12 months or so, also confirm that the feedback is that the architecture of GD/ECO is “fixed.” e. We know from the GGF that our concerns re the consultation process were shared by many of the other industries and industry members involved.

3. Fuel poverty in the rented sector: a. GD is primarily about people who can pay (up front, partially up front or, all on credit) for home energy efficiency improvements. It’s clearly not therefore the primary route of delivery to those suffering fuel poverty in either the rented or owned sectors. b. This is therefore more likely to be addressed by the ECO proposals, either for carbon reduction, mainly through SWI and related measures or, through affordable heating measures. c. The targets for ECO spend run to £1.3 billion per annum from 2012 to 2015 and the costs will be paid for by increasing levies on consumer fuel bills, the

Page 193191 of 298 other main concern of the CCC at this moment. Currently fuel bill related “stealth taxes” amount to circa 6% and this if forecast to rise to circa 9% over the next 2 years. d. These mounting costs on consumers and businesses, via fuel bill stealth taxes, are becoming of increasing concern to us all, particularly when they are allied to inflation busting rises for energy costs.

4. Green Deal Providers: a. There is anecdotal evidence about that Gov has been in discussions with a number of large national organisations (retailers and energy companies) about the role of the GDP. These national retailers and energy companies were following their meetings with DECC able to restructure their business models whilst SME’s were kept in the dark. b. The concept of the GDP introduces, if adopted, a new tier in the supply of EE products to the consumer, who hitherto has been able to deal direct with the suppliers and installers of his choice. The GD policy and structure also load the role of GDP’s with many onerous and costly duties which will have to be paid for by the consumer. (See appendix). c. A commercial evaluation of the responsibilities involved and, an estimate of the profit margins required, suggest that the inclusion of the GDP step in the supply chain will likely double the cost of EE measures, from those currently available direct to the consumer. (See appendix). d. Some of these additional costs will arise because of the need for Qualified Assessors to survey properties and provide reports and EPC’s, not currently a requirement and because the national retailers and energy companies will seek to make inflated profits from the GD scheme. e. However, the larger part of the costs will come from the fact that GDP’s will have to act as main contractors on thousands of small domestic jobs, each involving anything from 1 to a dozen installation trades. On top of this they will have to arrange for GD finance loans and their repayment arrangements via their electricity bills and be responsible for dealing with all customer queries, pre, during and post contract. We don’t believe that either the putative GDP’s to whom DECC have talked or the Gov generally understand at all what the obligations of acting as main contractor really entail, with regard to domestic homes and business premises. For instance, they will be required to carry out extensive H&S risk assessments before they can begin to bring the necessary sub-contract installers onto site. They will also be required to have a physical presence on site to co-ordinate the work of the various trades involved. f. Because GD does not yet exist, we cannot provide evidence of how large national GDP’s will distort the workings of the current EE products’ markets. However, many believe that they will not be able to commercially work with literally thousands of small to medium installation companies (the backbone of today’s markets) but, rather will feel the need to work with a limited number of large installation sub-contractors. Evidence of this sort of thinking is available now if required (Tesco and Homebase).

Page 192194 of 298 g. Although the Minister has made lots of warm noises about the need to ensure that SME’s are fully involved in the GD/ECO markets, we believe that this is unlikely to be the case in reality. Simply, Gov prefers to deal with large organisations and large organisations prefer to deal with limited numbers of suppliers. It’s also highly unlikely that any SME’s will wish to or have the means to become GDP’s in their own right. (The GGF have put forward the idea of a GD consumer voucher scheme to try and overcome this problem, as part of their official response to the GD consultation exercise).

5. Energy Companies: a. Under GD, energy companies will collect customer loan repayments via electricity bills. b. Should EC’s also be allowed to act as GDP’s they will be in a position to seriously distort the market for EE products: i. As EC’s supply and bill all households in the UK, they have unrivalled customer contact and the ability to market their GD/ECO services effectively for free, via energy consumption statements. We have already experienced many examples of consumers postponing purchase decisions because their Energy Company has advised them to “wait for Green Deal.” ii. Under ECO, EC’s will be targeted to spend our money on carbon reduction and affordable heating projects. To the tune of £1.3 billion per annum! iii. As GD suppliers they will be in the enviable position of being able to “sweeten” Green Deals by including ECO funds. They then will benefit from the resulting work and, making progress towards their Gov carbon reduction targets. iv. If EC’s are also allowed to install themselves (as they currently do with boilers/insulation etc) they will effectively be able enjoy the full market profit (Energy company/GDP/Installer margins) assisted by ECO cash, paid for by all of us. v. As most of the EC’s are foreign owned, their profits (UK tax payers funded) will be sent out of the UK in the form of dividends to foreign shareholders, primarily in fact foreign Governments! When the implications of this are realised by the general public, Gov can rightly expect an outcry of indignation. How does this compare to ECCC members expressing concerns that PV panels were often made abroad?

6. The Golden Rule:

Page 195193 of 298 b. This will lead to even the most EE window and door products requiring loans over 25 to 40 years. (The lower figure when replacing single glazing the higher when replacing existing double glazing). c. The GR also calls for GDP’s to supply Insurance Backed Guarantees for all such deals and there is evidence to suggest that these will not be available on an affordable basis, over these sorts of time period. d. Additionally, GDP’s must supply full product warranties for the duration of the GD loans and of course they will require back to back support on this from their installer sub-contractors. e. The window industry already offers consumers warranties of 10 years as standard, much longer than is available on most consumer durable purchases. (For instance a consumer will be lucky to get more than a 12 months’ warranty on a new boiler). f. However, the current state of technology does not permit for the 10 year warranty period to be exceeded without a significant cost penalty to the whole industry. (The cost of call-outs to products whose moving parts, sealed units and seals will require increasing service attention after the initial 10 year warranty period). g. If Windows and Door replacement deals are done on a 10 year limit, then this will reduce the quantum of such deals to around £1,000. Not sufficient for purpose. h. The Golden Rule also contains a mathematical circular argument: i. Let’s say that a deal is worth £5,000 with all GDP costs and VAT and requires 25 years to pay back. If you then add the interest for the 25 year loan, the total value of the deal increases and therefore requires a longer payback time, requiring more interest, and so on.

i. In the consultation paper DECC asks whether fixed or variable rates of interest should be applied to GD loans, favouring “market forces.” Of course, if the principles of the GR are applied, only fixed interest rates are permissible, as only with fixed rates can the full cost of the GD be computed up-front. (Allowing variable rates of interest implies that there is no ability to forecast the cost of the deal plus interest repayments). j. Finally, it’s worth reflecting on the fact that locking consumers and businesses into 25 year plus repayment plans will effectively lock them out of buying into technological advances during that period. With technological change being so rapid, this will have the opposite effect to that wished for by DECC/Gov.

7. The consumer and the Golden Rule: a. Unfortunately the GD proposals are likely to lead to both miss-selling on a widespread scale and, huge potential confusion and disappointment for customers of EE products.

Page 194196 of 298 b. Even if we assume that all Assessors and GDP sales people play with a straight bat, we also know that consumers “hear what they want to hear!” c. The application of the principles of the GR will lead consumers to believe that the “savings” made by the installation of their EE products will pay for the costs of the deal and loan. This simply will not be the case! d. The problem is that the energy efficiency calculations are all based on saving KWh’s of energy, not ££’s. As the cost of energy rises (probably above the rate of inflation) so the unit savings will become dwarfed by the effect of inflation on energy bills. e. Also, you need to factor in the way in which weather conditions affect energy consumption. Just like the sun, which is by far the greatest determiner of global temperatures; so the weather is the greatest determiner of energy usage. If your EE products are installed during a mild winter, you will find yourself using less energy units. If the next winter is much colder, you will use many more units, despite the EE products. f. If we then factor in the likelihood of miss-selling on top of these factors, you can see that there is a very significant chance that many consumers and businesses sold GD’s, are going to land up dissatisfied and blaming the Gov for the repayment costs they have incurred.

8. Customer repayment obligation: a. The GD loans have to be paid back via an obligation on the electricity bill to the home. b. When the customer comes to sell the home/premises, the purchaser is to be told to take over the remaining repayments, despite the fact that the value of the GD improvements will already be paid for in the purchase price!! This effectively will mean that vendors are going to have to pay off the remaining repayments on sale as few purchasers will agree to take on an ongoing payment obligation incurred by the vendor. Unless this is well pointed out at the time the GD obligation is entered into, there will be widespread dissatisfaction on the part of vendors under the proposed scheme.

c. We believe that this will cause problems for consumers and businesses in the future.

9. Customer freedom of choice: a. We believe that if the GD proposed structure is delivered from October 2012, literally thousands of SME installers of EE related products will have their future existence put in question. Simply, if the GDP’s limit sub- contractors to a few national or semi-national installers, the majority will not be involved in the GD process. b. Currently, consumers benefit from the wide range of choice available to them for installation of their products from national companies right down to “One man bands.” Competition amongst these installers has helped to drive down installed prices for products that have considerably improved in performance terms over the last 10 years.

Page 197195 of 298 i. Firstly, from potential lack of involvement in the GDP sub-contractor process and, ii. By a reduction in the leads that they can therefore service in the market. With installer net margins at around 5%, it doesn’t take much imagination to realise that a 10% reduction is sales leads (jobs going to GD) is going to lead to the death of many businesses, post GD launch. d. This will have 2 directly undesirable affects from HMG’s point of view: i. Many more individuals will be out of work. ii. Consumers, robbed of choice will find themselves paying more for the EE products that they want, post GD launch. e. Customer freedom of choice will be further eroded under the latest draft proposals for the revision of Building Regulations Document L, recently published by DCLG: i. In these proposals not only will windows and doors have to perform better thermally (expected) but also buyers of windows and doors and boilers may have to carry consequential improvements to their homes (unexpected). So, in the case of Windows and Doors, a highly popular consumer replacement product, sales are likely to be reduced (which the Gov does not want!) as consumers are forced by the new Doc L (effective from early 2013) to afford other improvements to their homes, regardless of whether they want them!

10. Appendix: GDP implied duties and the effect of the GDP tier on EE product pricing to consumers: Green Deal as currently envisaged will nearly double current improvement prices and in so doing will make the Golden Rule almost beyond reach.

Example:

1. Industry currently sells and installs a windows deal for: £3,000. 2. This would attract £600 of VAT at full 20% rate, giving an installed price of: £3,600. 3. Under GD, the GDP has to handle the deal and would receive a transfer price from Industry of £3,000. (Industry would add VAT at 20% but GDP would reclaim as input tax). 4. Under GD, a GDP has to handle all aspects of the deal. Given their responsibilities (see below) and the charge for the assessment and EPC, and a need to make a profit, it would seem unlikely that any GDP could work for less than 16.6% Gross Margin, requiring a 20% mark-up on transfer price: £3,000 + 20% mark-up = GDP deal price: £3,600.

Page 198196 of 298 through a GDP, £720 of VAT is payable. Thus HMRC gains £120 out of this process at the consumers’ expense). 6. If we assume WER Grade A windows have been used to replace single glazing and an energy cost inflation rate of 5% then £4,320 will require 22 years to pay back. If we also assume that a GD finance loan will charge a commercial fixed interest rate of 5%, then the approximate loan interest charge over the period will be £2,400. If this charge is added to the GDP retail deal price of £4,320, the total charge to the consumer will be: £6,720. 7. As the consumer could have bought direct from Industry for £3,600, he is having to pay an uplift of 87% for the privilege of using the GD process.

NB: The Golden Rule states that all the deal costs, including interest must be included in the calculation. What we have done above is take the GDP retail price and added the notional interest to give a total cost. However, as you can see this invites a “circular mathematical argument” which we have not attempted to resolve. Simply, by adding the interest cost we have created a NEW overall deal price of £6,720. This of course would require more than 22 years to pay-back, and would therefore require a longer loan with more interest, and so on. This is just one of the basic flaws in the GR concept.

8. In thinking about what the GDP mark-up will need to be, it’s worth reminding ourselves of the implied duties of a GDP from the DECC consultation document: a. GD providers will have to: i. Comply with the GD Code of Practice and have the GD Trust Mark. ii. Invest in a suitable “insolvency bond.” No details on what such might cost but they will be very costly. iii. Arrange/manage a panel of GD assessors to meet consumer demand. iv. Assemble quotes for the measures for consumers from qualified installers, either parts of their organisations or sub-contractors. v. Hold a modified CCA licence, to enable them to provide credit terms through the finance mechanism. vi. Access GD funding under the GD finance mechanism and in compliance with the GD Golden Rule. Deal with consumer top-up’s to that funding and ECO contributions, where appropriate. Working with “Brokerage” behind the scenes. vii. Ensure that the building’s electricity supplier is informed so that they can arrange the monthly/quarterly billing of the GD measures’ costs for the life of the GD plan. viii. Organise/manage the work to be done by the various trades involved. In other words provide H&S assessments and act as “clerk of works” on site. ix. Provide the building with an updated EPC when work is completed. Ensure the national EPC database is thus updated. x. Handle all customer concerns pre, during and post installation works.

Page 197199 of 298 xi. Provide IBG’s and warranties for all measures, for the life of the plan. xii. Arrange for repayments to be routed from the Electricity supplier to the finance supplier and account for same to the building operator on at least a 6 monthly basis. xiii. Deal with all customer complaints/disputes, involving arbitration as required, for the lifetime of every GD plan sold. xiv. Absorb all consumer payment default charges.

These duties, especially those surrounding H&S and Clerk of Works are onerous and will be very costly. Some, like surety bonds and IBG’s to cover periods of 20 years plus are totally unknown at this time.

Its worth noting that the Minister and his officials, how profess to understand business, say that SME’s could readily take on GDP’s work details above, really?

The ECCC has watched DECC make a complete mess of the FIT’s scheme, consumers have recently been purchasing PV largely out of a loathing for Government, hoping the Government then loses the ridiculous Court cases upon which it has embarked wasting yet again money from the Public Purse

The ECCC must be aware that DECC appear to be in a mess on smart meters, no meter specification agreed, 5 of the 6 energy companies not keen etc, another mess in the making. At Crystal we wish to fit smart meters with PV installations but cant, yet more harm to the environment.

I would respectfully ask that the Committee take full account of all the above when undertaking its enquiry into Consumer Engagement with Energy Markets.

I further confirm that I am content to appear before the Committee to give oral evidence if required, in fact I would welcome the opportunity.

March 2012

Page 200198 of 298 Further written evidence submitted by John Oddi (CE 26a)

I wish to bring to the attention of the committee the following key points:

Energy Companies / Export Tariffs

It appears DECC is largely against making the energy companies (mainly foreign owned) pay commercial rates for the PV energy they receive from consumers and resell. To discourage this train of though DECC have said that were the export tariff to be increased then the generation tariff would be reduced by a similar amount, in other words little point This Mr Yeo demonstrates nothing other then the reluctance of DECC to tackle the energy companies.

In 2011 when the Minister appeared before the ECCC in the televised debate you in fact stated that the Minister would have to do something about the export tariff, this featured towards the end of the debate and appeared to go unnoticed by most. It certainly appeared as though the Minister understood exactly what you meant as he sought no clarification and appeared to agree with you. What exactly did you mean?

Please see attached my letters dated 3rd February to Mr Davey and 9th of February to the ECCC.

Collapse of the UK Solar Industry 1st April 2012.

It is clear to all that DECC’s mismanagement of the FIT’s scheme has caused great harm and a total loss of confidence. There is now considerable evidence to suggest that the solar industry will collapse with the proposals DECC are set to announce comming into effect 1st April 2012. The outcome will be:

1. A near complete collapse of the UK solar industry with the loss of tens of thousands of jobs 2. Tens of thousands of consumers left with a PV system that has malfunctioned and is worthless, this as their chosen installer will have ceased trading. 3. Perhaps up to 20% of the UK installed PV systems simply no longer functioning, all that investment wasted. 4. A PV system not functioning has only caused harm to the environment.

Page 201199 of 298 Please see the attached copy correspondence, 15th and 28th February, with the CEO of REAL, Virginia Graham, it appears REAL have realised that all of the above is about to happen, their solution is to try and make insurance backed guarantees compulsory, note 95% of consumers have no such guarantees. The actions of REAL are of course too little too late, it will not protect those already installed and may in any event be unlawful.

The only solution would be for DECC to give the PV industry a chance of survival, something they appear determined not to do. The Minister talks about sustainability, but the reality as detailed above is a poor deal for the consumer, a poor deal for SME’s and a poor deal for the environment.

April 2012

Page 202200 of 298 Written Evidence submitted by Good Energy (CE 27)

Introduction

1. Good Energy is the UK’s leading 100% renewable electricity supplier. We supply 30,000 electricity customers of which 6,000 are dual fuel customers. We are also the FIT licensee for over 40,000 generators. 2. We source nearly three quarters of our power from bi-lateral Power Purchase Agreement contracts with small and medium-sized renewable generators, with the remainder sourced from our own capacity and the Non-Fossil Purchasing Agency. 3. We own and operate a 9MW wind farm in Cornwall, and have embarked on a 5-year plan to develop a further 110MW of renewable energy generation, all of which will be connected to the local grid network as opposed to the national transmission system. 4. Good Energy was founded in 1999, and is one of the oldest ‘new’ entrants into the domestic electricity market. Our ambition is to empower people to make a difference to climate change by choosing a renewable energy supply, generating their own power, and growing renewables in the UK. Good Energy has grown year-on-year since it was founded, in terms of customer numbers, turnover and profit and employees, with customer numbers growing by 15% last year despite the economic downturn. We have consistently delivered stable prices and have not increased our prices for over three years. 5. We continue to be an innovator in the energy market. We developed the UK’s first FIT and RHI scheme and we were instrumental in setting up the Green Energy Supply Certification Scheme under Ofgem’s guidelines. Last year we came top of the Which? Customer Satisfaction survey of energy suppliers, for the second time.

Executive Summary

6. Good Energy wishes to bring to the attention of the Committee the following concerns: • Issues related to the electricity retail market, including competition and transparency on pricing are inextricably linked to the electricity wholesale market. Tackling long-term liquidity issues and mitigating the tendency towards vertical integration is key to tackling the issues that the retail market faces. • Mandatory auctioning, as proposed by Retail Market Reform, will do little to improve genuine liquidity. Instead the Government should consider how Electricity Market Reform can fulfil this role.

• Tariff simplification as proposed under Retail Market Reform risks undermining the Government’s objective to improve retail competition and undermining tariff innovation that is clearly in the interest of the consumer. • Smart technology presents an important opportunity to redress the asymmetry of information that exists in the current market, which leaves the consumer with little control over their energy usage. Government policy currently does not recognise the value of microgeneration in relation to energy related behaviour change.

Specific Comments

Page 203201 of 298 The importance of wholesale power markets to a competitive retail market

7. Ease of access to the greatest range of wholesale power products is an essential pre-condition to a competitive retail market. 8. Suppliers (and the financial institutions backing them) require the confidence that they can easily purchase energy on competitive terms in order to grow their customer base, particularly through the forward markets. Low levels of market liquidity and a lack of market transparency need to be addressed directly, so that small suppliers have the oxygen that they need to grow. For those independent suppliers already in the current market, the combination of low levels of liquidity with the BETTA trading arrangements means there is a tendency over time to become vertically integrated perpetuating the problem. 9. Creating greater diversity in the wholesale market provides retailers with the opportunity to purchase energy in a greater variety of clip sizes, helping them offer more competitive retail products. Larger suppliers naturally produce wholesale power products in a way that is best suited to them – in large quantities that are of little use to smaller suppliers. That makes it more difficult for an independent supplier to enter or expand in the market by buying power in a cost- effective manner that is suited to their smaller customer base. Just as a small, local grocery shop will buy its goods from the wholesale market in a different way and in smaller quantities when compared to a large superstore, smaller energy suppliers need to buy power in a different way to the ‘Big Six’ suppliers. This is particularly the case when shaping energy trading portfolios – to offer the most competitive retail products, smaller suppliers need to be able to access the same range of different wholesale products that larger suppliers can, but in smaller quantities because their customer base is smaller. 10. Vertical integration in a market based around a relatively small number of suppliers naturally stifles competition under the current market arrangements, as independent retailers face little option but to purchase energy from their competitors on their terms. A low ratio of suppliers to retail customers in the UK market means that the wholesale products that are available tend to be larger in size, limiting the range of different sized wholesale products. 11. Good Energy’s experience of working with independent generators is that they are more likely to work on more favourable credit terms than those offered by larger generators. At present the monolithic nature of the UK wholesale market means that even if an independent supplier is able to source energy at a competitive price then they are expected to provide payment upfront for a large quantity. Finding the credit necessary to do so on a competitive basis remains a highly problematic issue for smaller retailers, who as a result tend to retain significant cash for collateral when trading due to the absence of a credit rating. That cash could instead be used for business growth. The problem is made worse still by the size (and therefore cost) of the wholesale products available. 12. It is for that reason that Good Energy has historically sourced the majority of its energy from the UK’s decentralised energy community, where independent ownership and small clip sizes are the norm, allowing us to source energy on more favourable terms. The introduction of the small- scale Feed-in Tariff and, over time, the Renewables Obligation has had a key role in improving liquidity in the Power Purchase Agreement market at this scale. 13. Whilst in recent months have seen an improvement in liquidity in the day-ahead wholesale markets, there is a need to ensure that that improvement is mirrored for other, longer-term markets. Ofgem’s current approach is based on monitoring levels of liquidity, responding only

Page 204 of 298 when it believes it to be necessary. We question this approach due to its retrospective nature. We believe that the need for a long-term and sustained but appropriate policy intervention has been established for some time.

Mandatory Auctioning as proposed under Retail Market Reform

14. We believe that Ofgem’s RMR proposals need to be more ambitious in their efforts to improve wholesale market transparency and liquidity in order to boost retail competition. The current proposals to require suppliers to auction power of their energy are overly complex and unlikely to significantly improve liquidity. 15. An auction mechanism is unlikely to offer customised shapes of infinite granularity, nor be frequent enough to allow suppliers to trade as and when required, due to differing trading strategies and therefore requirements to buy and sell power in the market. At the same time, creating a FIT CFD reference price based on 10% to 20% of the market could result in skewed prices as 80%+ of the energy would be traded opaquely. 16. We believe a far more straightforward solution would be to look further afield to Electricity Market Reform and ensure that it supports Retail Market Reform. This would require DECC, rather than Ofgem, to lead on policy in this area. The best way to do so would be through the introduction of a simple Feed-in Tariff scheme instead of a CFD scheme which represents a barrier to entry for new market entrants and skews the PPA market in favour of larger suppliers who have the trading portfolios necessary to manage such an instrument.

Creating a more transparent wholesale market

17. The lack of transparency over wholesale energy prices and their relationship with retail prices feeds consumer dissatisfaction with energy suppliers and the market as a whole. High levels of vertical integration and subsequent low levels liquidity contribute to that issue. 18. To address this, Ofgem could easily introduce a new measure to bring about transparency into the marketplace. All trade volumes, prices and costs between trading parties could be recorded, and reported to a third party such as Elexon, who could then publish reference prices based on the whole market. As more trades are notified then prices would be updated. This proposal would be a major step forward in improving market transparency, help provide policymakers and industry with a better understanding of the relationship between wholesale and retail prices and provide a suitable reference price for your Department’s EMR proposals. It would also play a role in making the market more accessible to new entrants seeking price information, helping improve liquidity.

19. Good Energy believes that the energy retail market should maximise consumers’ ability to engage with the energy that they use. Our simple tariff structure has long been a key part of providing a high quality of customer service. In February 2012, Good Energy topped Which? Magazine’s customer satisfaction survey. We agree with the need for Ofgem to intervene in the retail market to provide greater clarity and reduce confusion for consumers. 20. However the detail of Ofgem’s existing tariff simplification proposals creates a tension between the Government’s objectives to improve retail market competition whilst creating a market which is easier for customer to understand.

Page 205203 of 298 21. Fixed tariffs naturally require suppliers to be able to access the wholesale power products necessary to provide them in a competitive manner (see comments above about the wholesale markets). Proposals to allow suppliers to provide unlimited fixed tariffs but restrict the number of standard tariffs they offer will play into the hands of incumbent larger suppliers who will be able to mitigate the risk of fixed prices through vertical integration and the ability to buy long term based on credit rating, as opposed to cash collateral (see above comments about cash collateral and credit terms in the wholesale market). Newer, independent suppliers generally buy short term and are more vulnerable to energy market volatility, and therefore may struggle to compete in the fixed term market and on the same terms as larger suppliers. 22. At the same time, allowing only one standard, variable tariff is likely to harm the type of product innovation that is clearly in the interest of the consumer and, indeed, public policy. Under the proposals tariff innovation will be forced into the fixed-price, fixed-term market, meaning that suppliers will be unable to offer the type dynamic and time of use tariffs that smart metering will enable them to deliver. Local electricity tariffs could have an important role to play when linked to the development of renewable generation projects, ensuring that those people living closest to them are able to benefit from them directly. Dynamic tariffs that link particular types of generation to usage to reward load shifting (e.g. in relation to when power is being generated by a particular form of renewable generation) would be difficult to deliver. Suppliers would struggle to deliver more flexible time of use tariffs (e.g. tariffs linking solar generation to office air conditioning unit use). 23. Instead, alternative proposals should focus on the clarification of tariff information rather than simplification of tariff structure, and place an emphasis on ensuring that consumers can easily compare tariffs. Moving all tariffs to a simple standing charge, unit charge arrangement would be one way of doing this. To better balance the objectives of increased competition and clarity for the consumer, proposals should move away from prescribing that suppliers can only have one variable rate tariff and an infinite number of fixed rate tariffs.

Smart technology & consumer engagement

24. Under the current market, the consumer’s main means of engaging with the energy they use is through periodical bill payments. That engagement is one-dimensional and usually retrospective, with the consumer only able to change their energy usage in relation to a monthly or quarterly period on the basis of usage information which is often only estimated. 25. An asymmetry of information therefore currently exists between the consumer and supplier in terms of energy usage and price. The relatively unintelligent nature of the market means that information is largely managed by the supplier on their behalf, leaving the consumer with little opportunity to engage with it. Smart technology – and smart meters in particular – is key to changing the balance of that relationship, as well as providing wider systemic benefits. 26. For the consumer to take advantage of the technology, however, it is essential that suppliers are able to provide the retail products (i.e. tariffs) that allow them to do so. The current Retail Market Reform tariff simplification proposals run contrary to this. 27. Government policy currently underestimates the role microgeneration can have in changing consumers’ attitudes to energy usage. A recent Good Energy survey of its microgenerators found that 65% had changed their electricity consumption pattern to match their generation. This included running electrical appliances sequentially rather than simultaneously, and heating water during periods of generation. The same survey found that over half used less energy than

Page 204206 of 298 before, even taking their own generation into account. Of those generators, over a third said their usage had reduced by over 20%, with 5% claiming a 50% reduction. Almost two-thirds also said that they had taken additional energy-efficiency measures since installing their generation. Of those that had not taken any additional measures, many said that they had done so before installing generation. Once people become aware of their energy usage, then the evidence shows that using it changes their behaviour towards it.

Conclusion

28. Understanding consumer engagement with the energy market requires not just a focus on the behaviour of the electricity retail market but the relationship of that market with the electricity wholesale market. 29. This engagement is currently undermined by the lack of a liquid wholesale market, absence of market transparency and asymmetries of information related to energy usage and price. 30. Ofgem’s Retail Market Reforms are unlikely to improve wholesale market conditions to the point that an impact is felt in the retail market. At the same time, plans to simplify tariffs risk undermining efforts to improve competition whilst stifling tariff innovation that can deliver clear benefits to the consumer. 31. Smart technology and microgeneration have a key role to play in correcting the current imbalance of information between suppliers and consumers, with retail products being key to delivering that change. Evidence shows that microgeneration has a key role to play in changing consumers’ relationship with the energy that they use.

August 2012

Page 205207 of 298 Written evidence submitted by Ofgem (CE 28)

1. Introduction 1.1 Ofgem is the regulator of Britain’s gas and electricity markets. Our principal objective is to protect the interests of current and future consumers, by promoting competition wherever appropriate and regulating the monopoly companies which run the gas and electricity networks. As such, we have a direct interest in understanding how consumers engage with the gas and electricity markets at present, and how engagement can be supported further to ensure these markets work more effectively in the interests of consumers. 1.2 Our identification of issues and development of solutions is underpinned by an ongoing programme of consumer engagement and insight, alongside market analysis. This includes: • our own qualitative, quantitative and deliberative consumer research – for example, we commission large scale surveys and have a regular consumer panel comprising over 100 people from six locations across the country chosen to be broadly representative of GB consumers; and • examination of a range of external data sources such as data provided by suppliers, the Energy Ombudsman, Consumer Focus, Citizens Advice and Consumer Direct, plus consumer research undertaken by other organisations. Although this paper primarily concentrates on the experiences of domestic customers we also engage with representatives of business and other non- domestic consumers, for example via our Small and Medium Users Group and our Large Users Group . 1.3 This consumer insight prompted the establishment of our Retail Market Review (RMR)2, underpinned its conclusion that further action is needed to enhance consumer engagement in the energy markets, to help promote greater and more effective competition, and has informed (and continues to inform) the development of our proposed actions. 1.4 Our aim is to make it easier for consumers to choose the tariff that is right for them and for new suppliers to enter the market. Our RMR proposals include steps to improve tariff comparability and enhance the quality of information suppliers provide to consumers, as well as the establishment of enforceable, high-level principles setting out what consumers can expect in terms of how suppliers engage with them. We consider that these represent the most effective and fastest way of enhancing effective engagement and competition in the retail energy markets. 1.5 We are still in the process of reviewing consultation responses to our RMR proposals, but recognise that since we launched the RMR the industry has taken a number of actions that support our objective of simplifying the market for consumers. These moves are welcome, but we feel that looking across the industry as a whole they do not go far enough. Therefore we believe there is still a need for a cross sector reform package which we consider the RMR will deliver.

Page 208206 of 298 1.6 Rather than simply re-stating our detailed actions and proposals in the retail market, this paper focuses on some of the key consumer insights on which our interventions are built. It draws on the evidence base developed in support of the work of the RMR, as well as ongoing consumer research carried out through Ofgem’s Consumer First initiative3. In light of the inquiry’s scope, the following submission presents evidence relating to: • Consumer engagement in the energy market: what we mean by engagement in this context, and how levels of engagement vary across GB consumers; • Identified barriers to engagement, including factors which contribute to consumers’ reluctance to actively participate in the market; and barriers impacting on consumers’ ability and capacity to engage; this also includes issues faced by vulnerable customers; • Consumer attitudes towards broader energy related issues and awareness and understanding of future challenges and developments; 1.7 Wherever possible we have provided references to the evidence which supports our analysis.

2. Consumer engagement in the energy market 2.1 Our evidence suggests levels of engagement with the energy market are low among the majority of domestic consumers. For the RMR investigation in 2011 we developed a simple consumer segmentation model based upon both qualitative and quantitative research conducted to date, including a survey with domestic customers4 and our regular deliberative forum, the Consumer First Panel5. This model identified, and broadly quantified, five different types of consumers6 based upon their experiences and attitudes towards switching.

2.2 This suggests proactive consumers – i.e. those who are motivated by a belief that worthwhile savings can be made; who actively research offers and go on to switch supplier or tariff – make up a small minority of GB consumers. A similar proportion are identified as reactive consumers: they are also likely to have switched supplier or tariff within the last year, but may switch as a result of an encounter with a sales agent. Typically these consumers are vulnerable groups and families on low incomes. A greater proportion can be considered passive consumers who report having switched at some time in the past, most often to a dual fuel tariff with an incumbent supplier. Our

Page 207209 of 298 qualitative research suggests they do not feel strongly about the energy market, and despite being aware of their right to switch, and in some cases having high levels of energy literacy, they do not do so. Disengaged consumers report never having switched but don’t rule out switching in the future. They share many of the same attitudinal characteristics as Passive consumers, and may only decide to switch in reaction to poor service from their supplier or following an encounter with a sales agent. The final segment are permanently disengaged consumers who say they have never switched and do not plan to do so in the future. They are the ‘stickiest’ consumers and many – but not all – are likely to be vulnerable consumers. These consumers may feel that they are unable or unwilling to engage with the market. 2.3 In carrying out our duties, Ofgem must have regard to vulnerable customers including, but not limited to, those who are disabled, chronically sick, of pensionable age, on low incomes, and/or living in rural areas. The nature and extent of vulnerability experienced by energy consumers is wide- ranging and more dynamic than traditional models might suggest. A person may be vulnerable because they find it difficult to deal with complex markets, for example because of age, sickness, mental health issues, low literacy or numeracy, not having English as a first language or isolation resulting from where they live. They may also be vulnerable in certain situations, for example where they fear opening the door to strangers or they have reduced mobility because of a disability. They may also be vulnerable as a result of being on a low income which means they struggle to pay their energy bills. It is likely the degree of vulnerability will be more serious where someone has more than one of the examples given above. 2.4 We are currently considering what more can be done to help vulnerable consumers engage in and benefit from the gas and electricity markets and we will be consulting on our new Vulnerable Consumer Strategy later this year. We continue to undertake research with vulnerable consumers, for example we are currently examining the switching process for customers in debt. 2.5 Our aim in the RMR is to benefit vulnerable consumers, both by enabling more of these people to engage in the market as a result of simpler and more comparable tariffs and clearer information and by ensuring that those who cannot or will not engage are protected. We are currently reviewing responses to the RMR consultation documents, with a view to finalising our detailed proposals later this year.

3. Identified barriers to consumer engagement in the energy markets

3.1 Ofgem has developed an in-depth and up-to-date understanding of the key barriers to consumer engagement in the energy markets through a number of qualitative and quantitative research studies and other analyses. Our summary below is informed by current thinking on behaviour change and categorises barriers according to: • those which affect consumers’ willingness to engage in the market; and

Page 208210 of 298 • those which affect their ability or capacity to engage.

Barriers affecting consumers’ willingness to engage in the market

3.2 Status quo bias refers to the tendency of consumers not to change from

what they are currently doing unless they face strong reasons for doing so. Our RMR investigation showed two thirds of consumers’ energy accounts are with one of their ex-monopoly suppliers (either British Gas or the ex- monopoly electricity supplier for that region), and most consumers in the GB energy retail markets are on ‘evergreen’ contracts, within which there are no regular contract renewals to act as ‘trigger points’ to force them to reconsider 7 their current energy deal. 3.3 Even though our analysis has shown that consumers can make substantial savings by switching8, in our 2011 survey with a representative sample of the GB population 15% of gas customers and 17% of electricity customers said they switched their supplier during 2010 (representing marginally smaller proportions than in 2008 and 2007). In the same survey, 59% reported never having switched gas supplier and 60% say they have never switched electricity supplier9. 3.4 Our qualitative research shows that there are a number of attitudinal drivers which compound this apparent status quo bias. Since the Consumer First Panel started in 2008, many Panellists have said they do not feel strongly about the energy market and report not having the time or the inclination to find out more about the possible benefits of engaging with it. Our quantitative research10 suggests this may be driven by positive reasons and apparent satisfaction with the status quo, with three-quarters (77%) of non-switchers giving ‘happy with current supplier’ as the reason for not switching. However, in-depth qualitative research casts a more negative light on this. Members of our Consumer Panel articulate a sense of powerlessness in the face of regular price increases and concern that energy accounts for an increasing proportion of their household budget. They believe that there is little price differentiation in the market (i.e. that prices are similarly high across tariffs and suppliers) and report being increasingly dissatisfied with suppliers across the market, who in their opinion are guilty of excess profit making.11 3.5 In the context of GB energy retail markets, loss aversion means that consumers focus too much on potential losses (e.g. higher prices, problems during the switching process) than potential gains. Our Panel research also suggests this is a barrier for many consumers, especially for those on lower incomes who are most fearful of switching in case prices are higher and cannot be accommodated within existing household budgets. Our analysis suggests loss aversion, especially when combined with complex information is likely to make consumers disengage from the market. 3.6 Our body of evidence suggests many consumers’ believe there is no or little incentive to act to change the status quo and take what is often perceived as a risk, unless:

Page 211209 of 298 • it is clear the benefits of switching tariff or supplier (i.e. cost savings) will significantly outweigh the costs or potential costs of switching (e.g. time, ‘hassle’, risk of inadvertently choosing a worse deal); • consumers can see an obvious differentiation in price, and/or variation in the product on offer (e.g. as they might with a mobile phone package); and/or • they experience problems sufficient to motivate them to switch, and have confidence an alternative supplier will offer an improved service.

Barriers affecting consumers’ ability or capacity to engage in the market

3.7 The number of tariffs available to domestic consumers grew substantially in the period 2007-2011.13 Our qualitative research suggests the abundance of tariffs, the different pricing structures and wide range of features within them is off-putting for most consumers and hinders comparison.14 The growth in the number and range of tariffs may therefore give the appearance of increased choice but reduce consumers’ ability to choose. 3.8 This complexity means that even some energy literate consumers are unsure if they are on the right tariff. In our 2011 survey, of those who switched in 2010, around one in three either did not know whether or not they were saving money as a result or believed they were not saving money as a 15 result. There was a widespread view among our most recent cohort of Consumer First Panellists that suppliers have deliberately created a complex market that works to their advantage by discouraging consumers from finding the best deal.16 This is further reinforced by another qualitative research study looking specifically at improving tariff comparability in which ‘all respondents were of the view that something needs to be done to reduce the number of tariffs and to make it easier for consumers to compare tariffs in order to identify the most suitable tariff for their circumstances.’17 3.9 Consumers believe the language of the energy market is confusing, and presents a barrier to all but the most engaged of energy customers. Many energy market terms are not well understood by consumers. Semiotics and language experts18 commissioned by Ofgem concluded that a lack of standardised energy language across the industry further compounds confusion. Their report states that communications from suppliers are not consumer-friendly, and consumers cannot be relied upon to know the meaning of kWh, unit rate, standing charge, or any other energy-related terminology that is not part of their day-to-day vocabulary. 19 shows that vulnerable consumers are likely to encounter many of the barriers to engagement mentioned above, as well as additional barriers such as: limited capacity to engage because of more pressing concerns in their lives; difficulty trusting anyone they do not know; low levels of literacy and numeracy; not having English as a first language; and lack of internet access. Our quantitative research into tariff comparability models20 showed that when ‘vulnerable’ respondents21 were asked to look at different tariff presentation options, in

Page 212210 of 298 general fewer were able to identify the lowest tariff, comparisons took longer and fewer rated the options as easy to understand and use; however within this there was variation as “some sub-groups diverged in their views from the composite figures, either in the direction of “all consumers” or in the opposite direction”22.

4. Consumer engagement with broader energy-related issues and future challenges

4.1 Our research23 suggests that although some consumers have concerns about security of energy supply, sustainability issues and their impact on future energy prices, most tend not to be well engaged with wider energy market issues. When prompted to consider these issues, Consumer First Panellists have demonstrated relatively high awareness of some factors (e.g. diminishing North Sea gas) and limited awareness of others (e.g. nuclear power stations being decommissioned).24 Generally they believe domestic sources of energy are important for security of supply and to avoid reliance on other countries. As regards attitudes towards sustainable energy sources, consumers’ location appears to be one driver of views: Panellists from urban or semi-urban areas are generally more supportive, and those from rural areas express concern about the perceived damaging effects of some renewables (especially wind) on the landscape, and call for improved local community engagement. Nevertheless, both groups express some concerns about the potential costs and impact on energy prices, especially in the context of current price rises. This is also reflected in our quantitative research into energy issues in which the price of domestic energy is the most frequently mentioned concern overall.25 4.2 The government is mandating the roll-out of smart meters in GB for both gas and electricity consumers in the domestic and smaller non-domestic sectors26. Suppliers will be required to procure and install meters for their customers, and to complete the roll-out by a specified date in 2019. Domestic customers will also receive an In-Home Display (IHD) which 1 provides information on their energy consumption . The Department for Energy and Climate Change (DECC) is directly responsible for managing the Smart Metering Implementation Programme. As part of this, it is developing a consumer engagement strategy which will consider the case for elements of consumer engagement in relation to the roll-out to be carried out centrally or on a co-ordinated basis. This strategy will be consulted on in spring 2012. 4.3 Smart metering has the potential to be an important catalyst for change in the energy sector. These changes have the potential to support our key objectives of contributing to the achievement of a low-carbon energy sector, helping to maintain security of energy supplies and promoting quality and value for all consumers. The available evidence both from our research, and more widely, suggests positive consumer engagement will be vital to

1

Page 211213 of 298 delivering the benefits of smart metering; although it will be important to ensure that those who are not able to engage do not lose out. 4.4 Trials of smart metering undertaken as part of the Energy Demand Research Project (EDRP) reported some customers having difficulties in understanding the new equipment provided. The EDRP also showed that technology alone may not be enough to influence behaviour. Consumers need to know how to access and use the data that their IHD provides, know what to do with that 27 data and have an interest in doing so. Consumer First Panellists have shown some awareness of smart meters, however only a few have a detailed understanding of what they are, and there is no understanding of the difference between a smart meter and an IHD. Reactions to smart meters were neither overwhelmingly positive nor negative when they were discussed at some length.28 Panellists welcomed certain benefits that would help them reduce and regulate energy usage and save money on energy bills. However, the cost of the roll-out was mentioned as being potentially very high and some were concerned about data privacy and security. Some elderly Panellists expressed anxiety about feedback about expenditure, to the extent that they thought some might stop using their heating. More broadly, Panellists thought that some consumers would be disadvantaged because they may find the smart meters and IHD difficult to understand or use.29 4.5 We are working with DECC to help ensure that the interests of consumers remain protected both during the transition to smart meters and once the smart meter roll-out is complete.30 This runs in parallel to our work with government in considering the opportunities and issues associated with the development of a smart grid. We will continue to introduce new consumer protection measures in response to early smart meter deployments and we continue to explore the safeguards that may be necessary in the light of market developments.31 4.6 We are aware that substantial consumer engagement is planned in connection with the smart meter rollout and we have had some discussion with DECC about how this might happen and its interaction with the communication of RMR-related changes. 4.7 We would not expect consumers to have much if any awareness yet of the Green Deal, given that it is still at a policy development and legislative stage. Clearly the profile of the Green Deal is likely to grow. While much of it falls outside our remit, we clearly have an interest in how it affects retail market competition and levels of consumer trust, and we continue to engage with DECC on this.

March 2012

Page 212214 of 298

Appendix 1 – References and end notes

1 See link for membership of Ofgem’s Small and Medium Users Group (SMUG) and Large Users Group (LUG) http://www.ofgem.gov.uk/Consumers/Documents1/Membership.pdf 2 Building on the findings of our 2008 Energy Supply Markets Probe, in November 2010 Ofgem launched the Retail Market Review to investigate whether the gas and electricity markets in Great Britain (GB) are working effectively for consumers. 3 In 2007 Ofgem launched Consumer First, a programme designed to ensure that consumers remain at the heart of everything we do and help us improve our understanding of the things that really matter to consumers. Part of Consumer First involves consumer research to inform our key policy decisions and the dissemination of consumer insight across the organisation. 4 http://www.ofgem.gov.uk/MARKETS/RETMKTS/RMR/Documents1/IpsosMori_switching_omnibus_2 011.pdf Ofgem commissioned Ipsos MORI to conduct a face-to-face survey representative of the population of Great Britain aged 15+ to enable greater understanding of switching rates among the population, and vulnerable customers specifically. This is a tracking survey conducted annually. 5 The Consumer First Panel is a deliberative forum comprising over 100 consumers from around Great Britain who are chosen to be broadly representative of the population. Since January 2009 Panellists have met regularly to discuss key issues impacting on their participation in the energy market. Panellists change each year. 6 Although the evidence available to us suggests that some non-domestic customers (e.g. micro businesses and SMEs) may face similar challenges in engaging with the market the evidence presented here relates to domestic customers only. 7 What can behavioural economics say about GB energy consumers? Ofgem, March 2011 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/Behavioural_Economics_GBenergy.p df; Ipsos MORI 2011, ―Customer Engagement With The Energy Market – Tracking Survey 8 Ofgem 2011,The Retail Market Review – Findings and initial proposals, p37 Figure 2.10 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/RMR_FINAL.pdf 9 Ipsos MORI 2011 ― Customer Engagement with the Energy market – Tracking Survey http://www.ofgem.gov.uk/MARKETS/RETMKTS/RMR/Documents1/IpsosMori_switching_omnibus_2 011.pdf 10 Ipsos MORI 2011 – Customer engagement with the Energy Market – see hyperlink above 11 Ofgem Consumer First Panel Year 4: Findings from first workshops (held in October and November 2011) January 2012 http://www.ofgem.gov.uk/Sustainability/Cp/CF/Documents1/Ofgem%20Consumer%20First%20Pan el%20Year%204.pdf 12 Ofgem Consumer First Panel Year 4: Findings from first workshops (held in October and November 2011) January 2012 – see hyperlink above 13 Ofgem 2011,The Retail Market Review – Findings and initial proposals p22 Figure 2.1 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/RMR_FINAL.pdf 14 Tariff Comparability Models Volume 1 - Consumer qualitative research findings; A report by Creative Research on behalf of Ofgem; October 2011 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/Tariff_Comparability_Qualitative_Re search.pdf ; also based on an analysis of Consumer First Panel reports since 2009 15 Ipsos MORI 2011 – Customer engagement with the Energy Market – see hyperlink above

Page 215213 of 298 16 Ofgem Consumer First Panel Year 4: Findings from first workshops (held in October and November 2011) January 2012 – see hyperlink above 17 Tariff Comparability Models Volume 1 - Consumer qualitative research findings; A report by Creative Research on behalf of Ofgem; October 2011 – see hyperlink above 18 Lawes Consulting & Lawes Gadsby Semiotics; Retail Market Review – energy bills, annual statements and price rise notification advice on layout and the use of language; A research report for Ofgem; November 2011 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/Lawes_Language_Report.pdf 19 2011 Vulnerable customer research, FDS Ofgem Research Report on Vulnerable Consumers’ Engagement with the Energy Market http://www.ofgem.gov.uk/Sustainability/SocAction/Publications/Documents1/vulnerable%20custo mer%20engagement%20with%20the%20energy%20market%20research%20report.pdf 20 Consumer reactions to varying tariff comparability models; Quantitative Research conducted for Ofgem, Ipsos MORI, 18 October 2011 http://www.ofgem.gov.uk/Markets/RetMkts/rmr/Documents1/Tariff_Comparability_Quantitative_R esearch.pdf 21 For the purpose of this study respondents considered to be vulnerable customers included those on low household incomes (up to £11,499 pa), those aged 65+ and state supported (the “frail” elderly), those who conceded they had problems with literacy or numeracy (or who had no formal educational qualifications) and those who considered themselves to be disabled. 22 Consumer reactions to varying tariff comparability models Quantitative Research conducted for Ofgem, Ipsos MORI, 18 October 2011 23 With the exception of our 2009 research ‘Energy Issues 2009, Survey of British public opinion’ by Ipsos MORI http://www.ofgem.gov.uk/Sustainability/Cp/CF/Documents1/MORI%20energyissuesreport%20Final. pdf. Please note that awareness of wider energy-related issues among consumers has rarely been the core focus of our consumer research. However it is possible to come to some conclusions based on the source above and a broad analysis of qualitative data in which these broader issues are discussed. 24 Ofgem Consumer First Panel – 2009/2010; Findings from second workshops - Project Discovery (January 2010) http://www.ofgem.gov.uk/Sustainability/Cp/CF/Documents1/Ofgem%20Panel%20Discovery%20rep ort%20FINAL.pdf 25 Energy Issues 2009, Survey of British public opinion’ by Ipsos MORI – see hyperlink above 26 By ‘smaller non-domestic’ we mean electricity customers with meters on profile classes 3 and 4 and non-domestic gas customers with consumption of less than 732 MWh per year. Further information on the policy design for the roll-out can be found in the government’s March 2011 Response to the Smart Metering Prospectus Consultation. Smart Metering Implementation Programme: Response to Prospectus Consultation, Ofgem/DECC, March 2011. 27 Energy Demand Research Project: Final Analysis, Aecom 2011 http://www.ofgem.gov.uk/Sustainability/EDRP/Documents1/Energy%20Demand%20Research%20Pr oject%20Final%20Analysis.pdf 28 Ofgem Consumer First Panel Year 3; Report from third set of workshops; Smart Metering Data Privacy Issues; June 2011 http://www.ofgem.gov.uk/Sustainability/Cp/CF/Documents1/Panel%20report%202011.pdf Ofgem Consumer First Panel; Year 3 2010/2011 Findings from first workshop held in November 2010 (January 2011)

Page 216214 of 298 http://www.ofgem.gov.uk/Sustainability/Cp/CF/Documents1/Smart%20Meters%20report%20final.p df 29 As above. 30 Promoting smarter energy markets, Ofgem, December 2011: http://www.ofgem.gov.uk/Markets/sm/strategy/Documents1/Smarter%20Markets%20Strategy%20 -%20Consultation%20document.pdf 31 Supporting effective switching for domestic customers with smart meters, Ofgem, December 2011: http://www.ofgem.gov.uk/Markets/sm/metering/sm/Documents1/effective_switching_consultatio n.pdf

Page 215217 of 298 Written evidence submitted by Scottish Power (CE 29)

Executive summary

i. Consumers have a basic level of energy literacy but there is evidence that consumers have relatively low levels of understanding of (or interest in) more detailed aspects of energy usage, such terms like kWh or the relative consumption of different appliances. Companies have responded to this by providing individual annual quotations as part of the sales process and we welcome Ofgem’s current initiatives to seek common terminology and more information presented on a common basis. These measures should enable consumers to engage in the market with greater confidence and make an informed choice of energy supplier.

ii. Our research suggests that consumers are generally aware of the different components that make up their energy bill, and have a general appreciation of their relative contributions. This may reflect a positive outcome from suppliers’ initiatives to educate customers through their bills. The exception is supply company profits, which consumers significantly over-estimate, possibly in reaction to the media profile of the sector.

iii. Most consumers have an expectation of increasing prices and bills, but, as with the make-up of the bill, a significant minority put undue weight on supply company profits as the cause. In a survey, more than a quarter cited ‘greed/profiteering’ by energy suppliers as their main reason for expecting an increase.

iv. Current rates of switching are already relatively high by comparison with other markets. A key factor limiting switching is consumers’ financial motivation, with a large majority indicating in our survey that they would be looking for an annual saving in excess of £50 before switching. This reflects similar inertia factors in other markets.

v. The ‘information measures’ within Ofgem’s Retail Market Review (RMR) proposals should have a positive impact on engagement and trust in suppliers. However, we are concerned that the tariff restrictions proposed by Ofgem may harm competition and reduce consumer engagement. They would remove a number of features that, according to survey evidence, consumers greatly value. We believe Ofgem should focus on an expanded set of information measures.

vi. Consumer awareness of the Green Deal, smart meter roll out and Ofgem’s RMR is currently very limited. Consumer perception will be particularly important for take-up of the Green Deal, and positive early word of mouth communication will be vital. Consumer awareness will also be vital to realising the energy efficiency goals of the smart meter programme. vii. Suppliers and other industry stakeholders have a key role to play in informing and empowering consumers, with appropriate support from trusted voices such as Ofgem, consumer groups and Government.

Page 216218 of 298

RESPONSES TO QUESTIONS

A. How “energy literate” are consumers in the UK? For example, are most consumers aware of how much their bills vary according to usage? Are terms such as “kWh” understood by most consumers?

1. We think that consumers are, for the most part, sufficiently energy literate to engage in the market in the ways that they need to. Even if terms such as ‘kWh’ are not widely understood, consumers generally have enough awareness and understanding of their overall consumption and spending to enable them to make an informed choice of energy supplier.

2. The vast majority of consumers who switch supplier do so via a channel in which they receive a personalised quotation and comparison (eg tariff comparison service, supplier website, telesales agent). Whether these quotations are given by a comparison service or a supplier, there are strict rules to ensure that the quotation and comparison are accurate. In these circumstances the price comparison is straightforward, and surveys confirm that consumers have little difficulty in this respect.1 Indeed, as a result of concerted efforts by suppliers, Ofgem and Consumer Focus over the last few years, energy consumers now receive higher quality information in the course of the switching process than in virtually any consumer sector.

3. Research does suggest that consumers have relatively low levels of understanding of (or interest in) more detailed aspects of energy usage:

• most consumers are not familiar with energy terms such as ‘kWh’ or ‘primary’, ‘secondary’ and ‘unrestricted’ units, or what unit rates they are paying for energy2;

• most consumers have a poor awareness of the energy consumption of different appliances, or how their behaviour during a particular billing period translates into their energy bill;

• even when given the tools to track their energy use, many consumers show little sustained interest in using these tools.

However, as indicated above (paragraph 2), this has little bearing on capacity to switch as computer-based quotation tools provide an alternative and much simpler way forward. We welcome Ofgem’s proposed information remedies which would supplement this quotation approach with a clear tariff description.

B. To what extent are consumers aware of the different components that make up their energy bills and the relative contribution of each aspect? (e.g. wholesale costs, transmission and distribution charges, environmental/social policies and VAT)

4. Our research suggests a relatively low spontaneous awareness of the different components that make up the energy bill, reflecting a generally low level of consumer interest in energy matters. However, once prompted, consumers have a surprisingly

1 In research carried out in 2010, 85% of switchers found the process of their last switch very or fairly easy (46% judging it “very” easy); just 4% rated it as very or fairly difficult. Ipsos MORI Tracking Survey, 28 January 2011, page 33. 2 Recent research by County Homesearch found that, of 1,100 homeowners surveyed, 80% had no idea what they were paying for their energy per kWh.

Page 217219 of 298 good appreciation of their relative contributions - though substantially over-estimating the role of supply company profit, possibly as a result of the media profile of the issue.

5. A number of suppliers try to inform their customers by including a pie chart or similar diagram on each bill or statement that provides a percentage breakdown of the cost elements contributing towards a typical bill. This process has probably helped raise awareness of the major components.

6. Research commissioned by ScottishPower found relatively low spontaneous awareness of component costs amongst the general GB population responsible for household energy bills (see table below). The majority of respondents (52%) stated they didn’t know what components made up their energy bill, but of those who did mention specific components, these were reasonably well identified.

Top 11 mentions % mentioning3 Don't know 52.4% Cost/Usage of Electricity 10.8% Cost/ Usage of Gas 9.4% Excess Profits 7.9% VAT 6.8% Tax 6.4% Energy Costs 5.8% Other 5.6% Administrative Costs/Overheads 5.4% Heating 5.2% Standing Charges 4.9% Source: YouGov Omnibus survey for ScottishPower, February 20124

7. The same sample were then shown a list of components and asked what proportion of the bill they thought these accounted for (see table below). Compared to the low level of unprompted awareness above, these results are surprisingly positive. The contribution of wholesale costs was somewhat underestimated (33% versus approximately 50%) and the contribution of profits was substantially over-estimated (21%), but this demonstrates a higher level of latent awareness than might be supposed from other measures of consumer interest and engagement, and may reflect a positive outcome from initiatives which inform customers through their bills.

Billing Element % Contribution (weighted average across all responses) Actual energy costs, eg wholesale costs 33% Cost associated with delivering the energy to your home 14% Account management service costs 10% VAT 13% Government Obligation Costs 8% Profit 21% Totals 100% Source: YouGov Omnibus survey for ScottishPower, February 2012 (see footnote 4).

3 The categories are not mutually exclusive as respondents may make multiple mentions. 4 The YouGov survey total sample size was 2,024 adults in Great Britain of which 1,700 are responsible for household energy bills. Fieldwork was undertaken between 27th - 29th February 2012 . The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

Page 220218 of 298 C. To what extent are consumers aware of the future projected levels of energy prices and bills and the drivers behind this?

8. We think that that most consumers have an expectation of increasing prices and bills, but have limited awareness of any detailed projections and drivers behind those projections. Consumers’ expectations of future prices and bills are likely to be conditioned by their own experience of past increases and by media coverage of rising energy bills; because suppliers are the parties which have to communicate and enforce any increases, there is a natural tendency for some consumers to blame the supplier.

9. Our YouGov Omnibus survey found that the majority (82%) of British adults who have responsibility for household energy bills believed their future energy costs will rise over the next 12 months.

10. Those who believed their bills would rise over the next 12 months were asked to give reasons why they expected their bills to rise (see table below). A third of respondents (32%) cited general price increases or inflation (‘bills always go up’), but more than a quarter (27%) cited ‘greed /profiteering’ by energy suppliers. Slightly fewer (23%) cited the rising cost of wholesale energy and oil as the main reason.

Reasons for future Energy Bill increase (spontaneous) % Price Always Go Up 32% Corporate Greed/ Profiteering 27% Rising Oil/ Gas/ Wholesale/ Raw Materials Cost Going Up 23% Global Politics 6% UK Government 4% Lifestyle Change 3% Don't Know 3% Fixed rate ends 2% Green/Environment Tax 1% Decreasing Supply 1% Total (with a reason) 100% Source: YouGov Omnibus survey for ScottishPower, February 2012 (see footnote 4). Base: 1,373 adults who stated their energy bills would increase. Coding to this question undertaken by ScottishPower.

11. There appears to be little public recognition of the need for extensive investment in energy infrastructure and the other costs of providing a supply, including the costs of Government schemes.

D. What are the barriers to consumers switching energy provider? Will Ofgem’s proposed Retail Market Reform measures encourage behaviour change amongst consumers or are further actions necessary?

12. Current rates of switching are relatively high by comparison with other European energy markets and other domestic consumer markets5. In our view the main factors limiting switching are:

• consumers’ personal cost-benefit assessment: does the expected cost saving justify taking time to consider the options and switch? (see figure below, which

5 In 2009 switching rates for electricity and gas were 16%, compared with 5% for bank accounts, 8% fixed line telephony, 11% mobile phones, 9% internet. Of the services considered, only car insurance (31%) was higher. Source: Ofcom ,‘Strategic review of consumer switching A consultation on switching processes in the UK communications sector’, 10 September 2010, page 35.

Page 221219 of 298 illustrates the saving likely to be necessary to motivate switching – a picture not out of line with other sectors);

• inertia: even if the personal cost-benefit assessment stacks up, consumers may need a further prompt or nudge to actually engage;

• low awareness of telephone based price comparison and switching services.6

100% Propensity to switch as a function of cost saving

90% Model fitted to Morgan Stanley 2010

80% Morgan Stanley 2010

Morgan Stanley 2009 70% Morgan Stanley 2007

60% SP calculation based on YouGov 2012 (had switched in last year) SP calculation based on YouGov 2012 50% (hadn't switched in last year)

40% Proportion ofProportion consumers

30%

20%

10%

0% £0 £20 £40 £60 £80 £100 £120 £140 £160 £180 £200 Saving per annum

Source: ScottishPower based on Morgan Stanley7 and YouGov8 data

13. Ofgem’s RMR proposals include measures to improve overall trust in the market (eg standards of conduct) and measures targeted specifically at improving tariff comparability and hence consumer engagement. The latter fall into two broad categories:

• ‘information measures’, notably a price comparison guide and a standardised Tariff Information Label; and

• ‘core tariff proposals’, notably various restrictions on the types of enduring and fixed term tariffs that suppliers are allowed to offer.

14. We believe the proposed information measures will have an unambiguously positive impact on tariff comparability and consumer engagement. We consider these should form the core of Ofgem’s measures to simplify consumer engagement, complemented

7 Morgan Stanley Energy Supply Survey, January 7, 2011, page 10 8 YouGov, ‘Ofgem Proposals Omnibus Research for Scottish Power’, February 2012, pages 9 and 10.

Page 222220 of 298 where possible by other pro-competitive measures, such as steps to align language across the industry and better inform consumers on tariffs, switching services and the energy market.

15. We do not think that the core tariff proposals will have a positive impact on consumer behaviour and on retail prices. Although the proposed tariff restrictions should make it easier for consumers to compare tariffs directly, the ability to do this is not necessary to make informed switching decisions if comparative quotations are available. Moreover, the proposals may also have unintended impacts on competition and consumer choice which could outweigh the benefits of improved tariff comparability. For example:

• Consumers require a minimum level of saving in order to get round to switching. For a majority of consumers, survey evidence indicates that this will be well in excess of £50 per year. Ofgem’s proposal to set a regulated standing charge will cause prices to converge for consumers with lower consumption, and may reduce the overall level of switching.

• If Ofgem sets the standing charge, some consumers may incorrectly suppose that standard tariffs are endorsed by the regulator and be less inclined to search more widely for the best deal; this and related behavioural biases have been observed in other markets.

• The ban on discounted products (products priced at a fixed discount relative to the standard tariff) may weaken suppliers’ ability to compete aggressively for each other’s customers; currently suppliers can target their competitors’ customers with attractive discounts that they could not afford to offer market- wide. Without this option, competition may well be dulled.

• The ban on discounts for standard products will remove the ability of suppliers to incentivise efficient behaviour by their customers, and will increase industry costs. For example:

o without the Dual Fuel discount, the number of customers buying gas and electricity from different suppliers may increase, with additional billing, customer service and meter reading costs;

o without online discounts, the number of customers submitting meter readings online may reduce, with additional meter reading costs;

• The ban on bundling could prevent many types of charity affinity product, with negative impacts on funds raised for the charities concerned.

• There is evidence that while consumers do not like tariff complexity, they also value their current chosen product9; if they are denied this choice, they may feel less rather than more inclined to engage actively with the market.

16. Finally, the tariff restrictions will potentially interfere with Government’s ambitions to drive behaviour change through smart meter rollout. Under RMR proposals, time of use (ToU)

9 In Ofgem’s quantitative research almost half the customers wanted Green tariffs to be available, 24% wanted internet access tariffs to be available and 18% wanted dual fuel tariffs to be available, regardless of whether they opt for those choices. (Ipsos MORI, ‘Consumer reactions to varying tariff comparability’, 2011, p27)

Page 223221 of 298 tariffs would be restricted to the niche ‘non-standard’ product market, and dynamic ToU tariffs could be ruled out altogether.

E. Will Ofgem’s proposals (including on standard tariffs and greater transparency of information published by energy companies) help to increase public trust in energy companies?

Standard tariffs

17. We are concerned that Ofgem’s proposed tariff restrictions may not have the desired effect of increasing public trust in energy suppliers. In fact, it is possible that the proposals may actually undermine confidence in suppliers for the following reasons:

• In the short term, the fact that Ofgem is taking this action, and its explanation for doing so, is likely to reinforce consumers’ perceptions that the energy companies are acting against their interests.

• Tariff restrictions will create winners and losers10, but losses will be more visible than gains, so the overall consumer reaction may well be negative.

• In the longer term, if the tariff restrictions have the unintended consequences for competition and engagement that we fear, it may lead to increased consumer disillusionment.

‘Information measures’ (tariff comparison tables etc)

18. By contrast, we believe Ofgem’s ‘information measures’ (new price comparison guide and a standardised Tariff Information Label) will have an entirely positive impact on consumer engagement and trust, and we believe such pro-market measures should form the core of Ofgem’s tariff simplification initiative.

Transparency of information (segmental reports):

19. Ofgem’s measures to improve transparency of information about company profitability (segmental reports) should help increase public trust. For example, the investigation commissioned from BDO into the way the integrated companies compiled their segmental accounts (part of the transparency initiative) found no issues with reporting of retail profitability. This could help rebut perceptions that energy companies are making excessive retail profits, but it would be necessary for Ofgem to give appropriate prominence to the results.

F. To what extent are consumers aware of policies such as the Green Deal, smart meter roll out and Ofgem’s Retail Market Reform that could affect the way they use energy in their homes and their engagement in the market? And what are their perceptions of the schemes?

Green Deal

20. Given that the Green Deal is still in the planning stage and will not be launched until October 2012, we would expect current consumer awareness to be low at this stage. Only those who have heard about it from the media or who have an interest in energy efficiency are likely to be aware of its existence.

10 Eg consumers who don’t currently benefit from discounts (dual fuel, prompt payment, online etc) will gain at the expense of those who do. Consumers with medium or high consumption will benefit at the expense of those with very low consumption, as a result of removal of ‘no standing charge’ tariffs.

Page 224 of 298 21. For the Green Deal to be a success, high levels of consumer awareness about how the scheme operates and its benefits will be vital. Positive word-of-mouth communication from early adopters will be particularly helpful, so it will be important that the programme runs smoothly from the start. For this reason, it is essential to plan for a soft launch with limited numbers and the essential functionality only. The numbers can be built up and the remaining functionality added in the ensuing weeks and months, as any initial problems are resolved.

22. In the current economic climate, where householders are reluctant to take on additional loans, it will be difficult to generate enthusiasm for the Green Deal unless consumers understand the rationale for energy efficiency and can see how they will benefit from it. Clear, simple and consistent messaging will be crucial. While Green Deal Providers will independently promote Green Deal Plans, the new Energy Efficiency Deployment Office (EEDO) in DECC has a key role to play in promoting Green Deal on a national scale and encouraging up-take by making energy efficiency relevant to people’s everyday lives.

23. The Government needs to play a leadership role in encouraging consumer ‘pull’ for Green Deal via a clear communications strategy, which will reinforce the credibility of Green Deal and help to build trust in Green Deal Providers. Re-positioning energy efficiency as a ‘home improvement choice that will add value to your home’ may be one of the best ways to engage consumers in this market and create the necessary demand.

Smart meters

24. Much research, both internal and external, has been undertaken to identify customer needs before, during, and after the smart meter installation. According to Ipsos Mori Research, conducted by EnergyUK in November 2011, 57% of UK energy customers had still not heard about smart meters. In research conducted by ScottishPower with our initial smart meter customers in September 2010, we found that when customers referred to smart meters, in most cases they were actually referring to the In-Home Display (IHD).

25. As with the Green Deal, high levels of consumer awareness and engagement will be vital to the success of the programme. The Consumer Engagement Roll-Out Group (CERG) has been considering the implementation of an independent Central Communication Delivery Body to own the overall customer engagement activities during smart meter roll out. We support the existence of a central body to ensure the consistent delivery of generic messages to consumers, but note that work is still required to determine its scope and how its responsibilities would be integrated with individual supplier initiatives. We await a formal Industry Consultation on smart metering consumer engagement from DECC around the end of March.

Retail Market Reform

Page 225223 of 298 met with neutrality.11 This research also indicated that consumers may resent the loss of some current market features, such as discounts which they currently expect to receive.

G. What are the potential implications of a lack of consumer awareness in these areas?

Green Deal

27. Given that the Green Deal and the Energy Company Obligation (ECO) policies are critically dependent on each other for a successful outcome, lack of awareness of Green Deal is likely to have a huge impact on the ability of energy companies to deliver their targets under the ECO. Under current proposals, the carbon saving target of the ECO is largely focussed on delivery of solid wall insulation. However, this is a relatively new market presenting very significant uptake challenges. The projected cost of solid wall insulation under the Government’s draft Impact Assessment for the ECO relies on 43% of the funding (on average) coming from Green Deal finance and 57% from the ECO. However, there must be a real prospect that the scale of uptake of Green Deal packages for solid wall insulation does not support this assumption. Indeed, we consider it more likely that Green Deal payments will contribute 15% or less to the cost of delivering solid wall insulation. To the extent that a higher proportion of ECO subsidy is required, this will result in a lower scale of delivery than projected or require a higher level of overall financial provision.

28. As well as lack of awareness, we are also concerned about the attractiveness of the propositions under Green Deal. It has proved extremely challenging to encourage take- up of energy efficiency measures under the Carbon Emissions Reduction Target (CERT) programme, even when those measures are offered for free. Illustrative figures from DECC12 show that if a household in a three-bedroom semi-detached house got external solid wall insulation under a 30 year Green Deal plan, it would provide an annual saving on fuel bills of £5. Given that consumers typically need a saving of well over £50 per annum to switch supplier (see chart above), we have serious doubts whether households would be motivated by such small savings. Given the hassle and disruption involved in solid wall insulation, and the fact that a Green Deal Charge attaches to a property for 30 years13, we suspect savings of at least £200 per annum are likely to be required.

29. A lack of consumer awareness of the Green Deal will inevitably undermine the Government’s objectives for delivering energy efficiency improvements to households and the associated bill and carbon savings. It is also likely to hinder the continuing success of the businesses of incumbent installers, especially if the ECO continues not to allow for cavity wall or loft insulation to be delivered as part of the Carbon saving target.

Smart meters

30. DECC has made it clear that changing consumer energy behaviour is critical to realising the benefits case for smart metering and achieving associated carbon reduction targets. Low consumer awareness may also increase misunderstandings or concerns around health or privacy implications, leading to reduced consents for data access, limiting the extent to which consumers can benefit from tailored products or improved understanding of their energy consumption and the ways in which it can be improved.

11 YouGov, ‘Ofgem Proposals Omnibus Research for Scottish Power’, February 2012, pages 11-13 12 As used in the Research Report “Consumer Needs and Wants for the Green Deal” (DECC, November 2011) 13 Eg, owner-occupiers may have a perception that having a Green Deal charge attached to their property could complicate a possible future sale of their home.

Page 224226 of 298 Retail market review

31. A significant proportion of consumers would be worse off as a result of discounts and no- standing charge tariffs being withdrawn under RMR proposals. Unless Ofgem communicates clearly to those customers why it believes it is in consumers’ interests to restrict their choice and increase their bills in this way, this could lead to consumer resentment.

H. Is greater consumer education needed and if so, who should take responsibility for this, who should deliver it and how should it be delivered?

32. Educating consumers on the benefits and opportunities arising from energy market developments will be vital to their success. For example, implementing RMR information remedies such as a tariff label, and supporting this with a sustained and targeted switching and awareness campaign could empower and educate consumers and lead to longer term engagement and confidence in the market.

33. All industry stakeholders have a role to play in educating consumers. Ofgem, as an independent economic regulator, has an important role to play in educating consumers in a balanced and appropriate way, supported by both consumer groups and suppliers.

I. What impact does the media have on public perceptions of energy bills?

34. There has been considerable media interest in the UK energy industry for a long period of time. Energy has been high on the news agenda and energy companies can expect close scrutiny from the media. We fully understand this, as the cost of energy is something that impacts on all households in the UK. As an industry we can always do more to communicate clearly our messages, and ScottishPower is committed to engaging with all external stakeholders, including the media.

Page 225227 of 298 Box: Consumer attitudes to media coverage of energy issues

Recent consumer surveys suggest that, although there is a healthy degree of scepticism about what is read in the press, media coverage strongly influences negative perceptions of energy companies:

• 29% of the TTEP14 panel thought there was a negative ‘spin’ put on the facts; 26% had a neutral view, believing that just the basic facts were presented and 15% stated they do not believe what they read in the press;

• in the Omnibus survey15, 53% of respondents said that press articles had a negative (fairly/very) influence on their impressions of energy suppliers and 37% said the influence was neutral.

“....I find that the press is much more likely to report on negative connotations for the energy industry, which isn’t exactly a fair and balanced representation. In the same respect, I won’t necessarily trust a press release from the energy company itself, because it may be biased....”

“...I think the supplier come across as greedy, I realise that they have to make a profit to improve things, but sometimes feel this is done more at the expense of the customer and definitely for the benefit of their shareholders...”

“...Newspapers tend to come over all hysterical when it comes to the energy companies, particularly in relation to price rises...”

Source: Research undertaken by Intersperience for TTEP/YouGov (Omnibus) on behalf of Scottish Power, March 2012

J. What are the pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies?

35. An advantage of using levies for environmental policies is that, in economic terms, this can help to ‘internalise’ the environmental externalities of energy consumption. It also, from the point of view of Government bodies requiring such programmes, allows them to be less visibly associated with the costs, as the energy suppliers will be the people actually increasing prices. Conversely, an increase in general taxation is very visibly blamed on the Government.

36. However, the main disadvantage of funding environmental and social policies from a levy on bills is that the cost falls on the generality of consumers, and this is generally a more regressive approach to revenue raising than if policies were funded from the taxpayer in the normal way.

March 2012

15 YouGov Plc survey. Total sample size was 2077 adults. Fieldwork was undertaken between Fieldwork: 2nd - 5th March 2012 . The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

Page 228226 of 298 Written evidence submitted by SmartReach (CE 30)

This is the response of SmartReach, a collaboration of Arqiva, BT, BAE Systems Detica and Sensus, for smart metering communications in Great Britain, to the committee’s inquiry, “Consumer Engagement with Energy Markets”. We appreciate the opportunity to make a late response, in recognition of the fact that since the final date for responses, DECC has published the consultation document Smart Metering Implementation Programme Consumer engagement strategy. (Responses closed on 1 July). SmartReach offers established wireless technology, deployed in Arqiva-owned spectrum. SmartReach believes that, for the smart metering programme to be successful, it is essential that consumers adopt and engage with the technology and appreciate how they can realise the value. The government’s vision is for smart meters to be installed for every electricity and gas meter across Great Britain between 2014 and 2019. Smart meters should help to enhance the UK’s long term energy security and to meet the UK’s binding targets to reduce greenhouse gas emissions. Smart meters will facilitate smarter grids, smart appliances, electric vehicles, microgeneration and new markets in energy services, including Demand Side Response. Consumers could gain enormous benefits from the smart meter roll-out, particularly the ability to see in real time how much energy they are using and, therefore, how to save money on their energy bills. They could also access a wider range of products, services and tariffs (including, potentially, time-of-use tariffs to shift non-time sensitive use off-peak). It is widely recognised, however, that the success of the smart metering implementation programme depends on a high level of consumer engagement, both before and after installation, and consumer trust in the technology and the process. The Public Accounts Committee has warned that consumers will benefit from smart meters only if they understand the opportunities to reduce their energy bills and change their energy use behaviour. 1 Smart meter programmes in other countries where consumer engagement has not been planned or well executed have been severely delayed resulting in significant reputational damage and additional costs being incurred.2 It is also vital that consumers appreciate the benefits of smart meters and are receptive to the installation process. This includes facilitating access where required for installation. The current level of public awareness and understanding of smart meters is not high. In March 2012, a YouGov survey for USwitch found that less than half of those responding knew what a smart meter

In light of that experience, SmartReach agrees with the government and others that a comprehensive consumer engagement programme is needed for the smart meter roll out. In designing and delivering such a strategy, the government should learn and apply the lessons from the highly successful Digital Switch Over (DSO) programme and, in particular, the achievements of Digital UK, the company that was created and

1 Public Accounts Committee - Sixty-Third Report of 2010-2012 session, Preparations for the roll-out of smart meters 2 Green Alliance (June 2012), Smarter communications -strengthening consumer engagement on smart meters

Page 229227 of 298 funded by industry (i.e. the public service broadcasters and Arqiva) to lead the process of digital TV switchover in the UK. Digital UK is a single-purpose organisation, with a centralised delivery model, and a clearly defined remit: to implement the TV switchover programme in as simple and straightforward a way as possible for the UK’s television viewers. There are many important similarities between the DSO programme and the smart meter implementation programme. These similarities extend from the need for communications to reach into all homes, to a requirement for a service that is reliable and “always available”.

Digital Switch Over Smart Metering

All homes across GB

Critical national infrastructure Critical national infrastructure

Dedicated communications service Dedicated service best placed to meet specific delivered by Arqiva needs of utilities and consumers

Challenging delivery deadlines with five Challenging delivery deadlines with five year rollout year rollout

Communications always available Communications must be always available

Multi-stakeholder delivery, including Multi-stakeholder delivery, including communications infrastructure and in- communications infrastructure and in-home home devices devices

Phased region by region rollout All of GB at once

Content separate from communications Could differ according to the communications “pipe” provider

Simple installation process in every home not Simple installation in each home – guaranteed, but if delivered, can lead to good Retuning or set top box consumer experience

Highly effective consumer engagement, Consumer engagement is a key issue for every led by Digital UK utility

Single action required by consumers – Consumers need to be home for installation visit(s) retuning TVs

One-off change, with defined completion Need to support continuous change in consumer dates energy use behaviours

Digital UK has met its targets. Between 98 and 99% of homes have converted to digital, on the eve of the completion of switchover, and the media and stakeholder response has been very positive. The company’s communications costs are projected to be at least 30% under budget.

Page 230228 of 298 It is widely agreed that the smart meter consumer engagement strategy should be implemented by a centralised delivery body (CDB). Using the Digital UK model, SmartReach submits that the CDB should have a clear mission: a) to build consumer support for the roll out by building confidence in the benefits of smart meters and providing reassurance on areas of consumer concern; b) to motivate and educate consumers about how to use smart meters. The CDB’s mission should incorporate promoting changes in the behaviour of consumers so as to reduce gas and electricity consumption. The Empower Demand report, the international mass pilot comparison cited in the DECC consultation document3, highlighted the importance of customer education material in reducing total energy consumption. Other key activities for the CBD should include: • developing and implementing motivational campaigns to raise awareness of smart meters and how they can be used to help consumers save energy; • ensuring that energy efficiency advice and guidance is provided to consumers, both via suppliers and through third parties; • ensuring that third parties who can act as trusted messengers are engaged and supported to fulfil this role, and engaging, training, and co-ordinating third sector partners in order to maximise the effectiveness of their role in the smart meter roll out; and • keeping track of suppliers’ activities regarding consumer education and the extent to which consumers are responding positively. Arqiva’s experience from the DSO programme shows that effectively harnessing the power of trusted messengers is essential to successful consumer engagement. Many people will turn to third sector organisations for information on the roll out, whether they have a formal role or not. The CDB should ensure that third parties who can act as trusted messengers are engaged and supported to fulfil this role. Vulnerable consumers may have difficulty engaging with the meters, and may need the most information and reassurance about the installation visit and additional support, including advice on additional measures to help manage their energy usage. SmartMeterUK should examine the “outreach” model developed by Digital UK. This provides tailored support through trusted third parties to up to one million people identified as potentially vulnerable, but who may not be eligible for Digital UK’s help scheme. Digital UK ran a pilot exercise covering 26,000 homes in Copeland/Whitehaven, a year before committing large resources to rolling out its consumer engagement strategy on a national basis. By testing which messages and engagement tactics resonated with consumers, Digital UK was able to make significant improvements to the national engagement programme. The pilot exercise also helped Digital UK to identify and avoid potential inefficiencies. The CDB could also use a “pilot town” (or a number of “pilot towns”) to trial the consumer engagement strategy. Such an exercise could enable the testing of: consumer awareness raising and support activity; outreach activity for those who

3 VaasaETT for ESMIG (2011) Empower Demand - The Potential of Smart Meter Enabled Programs to Increase Energy and Systems Efficiency: A Mass Pilot Comparison

Page 229231 of 298 might need more support; suppliers’ roles in direct communications and support; access rates; consumer responses and concerns to the information provided; and consumer understanding of how use and gain the full benefits of smart meters; and changes. Energy suppliers should be obliged through licence conditions to establish and fund the CDB. Conversely, they should be involved directly in the governance of the consumer engagement strategy Arqiva’s experience with Digital UK suggests that such an arrangement would facilitate co-ordination and sharing of information, both between suppliers and with the CDB. The providers of communications services will have a direct interest in the messages disseminated under the consumer engagement programme. The licensed Data and Communications Company (DCC) for smart meters should, therefore, be represented on the CDB Board. August 2012

Page 230232 of 298 Written evidence submitted by Parliamentary Outreach (CE 31)

Background

1. The Houses of Parliament Outreach Service was approached by the Energy and Climate Change Committee on how to engage with consumers as part of their inquiry into Consumer Engagement with the Energy Market.

2. In partnership with the Committee, the Outreach Service organised three events as part of the “Parliament Talks...” series, which would focus on energy and the way consumers interact with the energy market.

th May 2012, one in East Bergholt (Suffolk) on Friday 18th May and one in Banchory (Aberdeenshire) on Thursday 24th May. In total, the three events were attended by 85 people.

4. Each event included a short introduction to the work of the Committee by a member of the Committee1. The audience was then divided into smaller groups where members of the Outreach Service facilitated discussions on different aspects of energy prices and consumer engagement with the energy market.

5. The evidence submitted below is a note of those discussions and represents the views of the attendees. It should be noted that, as one would expect, participants at all three events had a wide range of opinions and different levels of knowledge/expertise in this area. This note aims to provide as comprehensive and detailed write-up of the sessions as possible, whilst taking into account the challenges of communicating and explaining the purpose and structure of the activities to such a varied audience.

Topics

6. The audience was divided into three groups2. The groups were allocated at random and attendees were not given the choice of which group they would join. Each group discussed the following: - Group 1 were asked to consider the UK energy system as a whole and look at where we get our electricity and heating from and how much we need (both now and in the future); - Group 2 were asked to discuss bills and switching and were aiming to look at the energy literacy of an average consumer;

1 Dr Alan Whitehead MP was present at Southampton, Tim Yeo MP at Suffolk and Sir Robert Smith MP at Banchory. 2 Although in Banchory there was a smaller audience, so there were only two discussion groups instead of three.

Page 233231 of 298 - Group 33 were asked to look at sources of information and messages in the media and to consider how much consumers are influenced by where a piece of information comes from.

7. Each group undertook a number of different activities, which will be explained in more detail below. The purpose of these activities was to get a sense of how members of the public perceive energy and related issues (such as decarbonisation, energy security and affordability). The following evidence will be split into discussion topics, rather than by region.

Warm-up activities

8. At each event, the audience were asked to take part in warm-up activities, before the discussions took place. A summary of these activities is below.

Messages to David Cameron

9. Participants were asked to write down one message about energy that they had for David Cameron. All contributions can be found in Annex 1, but in summary there were a wide variety of comments, with the most common being: the removal of wind farms, increasing the provision/use of nuclear energy and using regulation (or other means) to encourage a more competitive, consumer-friendly energy market. A number of participants also commented that the Government needs to have a coherent, long-term energy policy that is clear and understandable for the general public.

“Use your power to cap energy prices and bring all suppliers into line with each other! Consumers are confused!!”

10. Participants were also asked to write one message that they had for energy companies. Again, there were a wide range of views but the most common included creating a simpler pricing system so customers could understand their bills and compare the different tariffs available. A number of participants also asked for reductions in energy prices and questioned whether supply costs had truly gone up. A minority also called for energy companies to cease having green subsidies and in one case to “sell up and go home” as energy ought to be a national asset.

“Keep it simple! Make bills easy to understand and help me keep my energy use as low as possible.”

3 As the audience in Banchory was only split into two groups, the activities in Group 3 were split between the two.

Page 234232 of 298 Group 1: the UK energy system – where do we get our electricity and heating from, and how much do we need?

11. A total of 29 people undertook these activities. Of these, there was a mixture of ages, but the majority were middle aged. Participants came from a range of different backgrounds and professions, including students, retired people, local councillors, a manager from the local Citizens Advice Bureau, an energy consultant, staff from the local university, an architect, community workers and a member of an alternative community. Within the group, there were slightly more men than women.

12. The purpose of the activities within this section was to try to gauge what level of understanding the participants had about the UK energy system, what contributes towards our energy bills and what the big challenges will be in the next decade. The final discussion tried to explore participants’ views on who should pay for things like low-carbon electricity, energy security and tackling fuel poverty.

Activity: Pie chart – components of energy prices

13. For this activity, the groups were given this pie chart, which they were told represented an average dual fuel electricity bill:

14. The pie chart was divided into sections, with each section representing a different component of the bill. These components were: wholesale cost of gas and electricity,

Page 233235 of 298 green measures, VAT, company profits, transmission costs, company operating costs and ‘other’4.

15. In this exercise, two of the groups were able to identify the components that made up their energy bills completely correctly and one group did not. The group that did not label the pie chart could not come to a consensus on how to allocate some of the labels, with there being disagreement on all but the largest two sections of the chart, which they thought would be operating costs (46%) and wholesale electricity and gas (19%). These labels were incorrect and they did not complete the rest of the chart.

16. The area where the groups had the most discussion was in deciding what was responsible for the largest part of their bill. Some thought it could be profit from energy companies, although it was later agreed that it would most likely be the wholesale cost of oil and gas. There was a perception among some participants that “Big Six” energy companies were responsible for the wholesale price of oil and gas and therefore that this price might easily be inflated by them:

“As far as I understand, the wholesale electricity market isn’t a genuinely open and free market. In most cases the major customer suppliers are also the owners of energy production. It is relatively hard for smaller suppliers to actually enter the market, so those prices are effectively manipulated by the Big Six.”

17. When the “profits” label was allocated, all of the groups felt that, although this may be the correct allocation, most company shareholders would not be content with only 6% profit. Some participants mentioned the subsidies that were available to energy companies and speculated as to where these fitted in. Whilst some specified green subsidies (and of those who did, they questioned their validity) but generally participants referred to ‘general’ subsidies:

“What that doesn’t show is the subsidies element; the vast amount energy companies get from the Government … almost you could say that the profit element is the cherry on the cake. That’s why they don’t squeal so much.”

18. The other area that caused some confusion was the amount of a typical bill that was allocated to green measures; in both groups there were members that expected it to be more than 6% and there was some scepticism about how this amount was calculated. A further concern was the transmission costs, with participants being surprised at the proportion this contributed to their bill. Some participants also raised concerns about the amount of energy that is lost in transmission.

19. It is also worth bearing in mind that both East Bergholt and Banchory contain a lot of properties that are not connected to the mains gas grid. As a result, there were fewer participants in our workshops with dual fuel tariffs than might otherwise have been expected.

4 The source of this pie chart was Ofgem, Household Energy Bills Explained, Factsheet 97, January 2011

Page 236 of 298 Discussion: the future of energy prices

20. For this section, the groups were asked to discuss their views on the future of energy prices and how they thought they would change.

21. The groups were first asked what they thought was going to happen to energy prices in the future. Without exception, all attendees felt that unless there was some kind of change, energy bills were going to go up. However, the rationale behind this view was very different across the groups. Views included:

• Prices would increase if we continue to rely on fossil fuels, as this is a finite resource and as supplies dwindle, prices will increase;

“I think the reason why bills are going to go up is because the supplies of oil are going to reach a limit and the scarcity with the industrialisation of emerging economies.”

• Prices will go up because there is “unnecessary” investment in green and renewable energy measures which are not truly sustainable;

“I think main reason prices are going to go up is because a larger proportion of our bills is being invested in this renewable energy. I think it’s a substantial amount, probably more than we anticipate.”

• Prices will go up because of a shortage of energy and a lack of investment into nuclear power and new coal-fired power plants;

“They’re certainly not going to go down. They’ll probably go up. I think we’ll be very lucky if they stay the same, because of the cost of investment for renewable and other provisions of power.”

• One participant suggested that it would be irresponsible to think that prices could go down when there was so much future investment required.

“I think it’s irresponsible to think you can make energy cheaper. What you need to make sure is that people understand where the money is going. We’ve got scarce resources, we have to try and change the future to renewable and so on, so we have to have investment in that and the distribution improved too.”

22. There were a number of conflicting suggestions from individuals as to how prices could be brought down. Suggestions included: greater use of renewable energy, more use of nuclear power, and investing in accessing shale gas in the UK. However, for each individual with these views, there were at least two that disagreed. Full quotes can be found in Annex 1.

23. The majority of the group agreed that there was potential for energy prices to remain static in the future, if not decrease slightly, if there was a “two-pronged” approach of investing in a range of different energy measures and supplies (including nuclear, renewables and fossil fuels) and working to encourage consumers to reduce the amount of energy they use. It was also felt that if the Government was seen to have

Page 235237 of 298 a long- term, comprehensive energy policy, this would provide the stability required to encourage investment, both in large projects and also at the micro level of individuals investing in energy saving measures in their homes.

“Until government gets its strategy right and encourages inventiveness, energy prices will go up.”

“We need to look at a selection of renewable power sources … I’d like to see some research and development into these technologies on our bills so that they do become more efficient and technology gets better.”

24. There was there some discussion about the implications of rising energy costs on those on low incomes and concerns were raised about the knock on effects of energy bills taking up an increasing proportion of consumers’ incomes. Similarly, it was felt that people who use pre-payment meters to buy their energy are being unfairly discriminated against as they are charged substantially more than those on “standard” tariffs but have no choice but to use them. They are also not able to make use of better deals by switching supplier:

“We’re likely to have price rises for individual fuels or energy sources but the critical thing is that it’s the proportion of a household budget that energy takes up. There is a critical point at which it becomes very difficult to manage other aspects of your household budget if you’re having to spend so much on the critical energy sources.”

“Even more so if you’re having to use a card meter as they don’t have the same choices as the majority of people. There’s an amount bolted on the top because it’s a card meter. They can’t take advantage of the other schemes that are available.

Activity: Who should pay?

25. For this activity, participants were given a worksheet with five different actions: building new power stations, building new electricity infrastructure, installing smart meters in homes and businesses, making energy efficiency improvements to homes and business and supporting people in fuel poverty. For each of these actions, they were asked to decide who they thought should pay for it: the taxpayer, the energy consumer, energy company shareholders or ‘other’.

26. The groups completed the worksheet individually and responses were then discussed as a whole. There was not a clear consensus on any of the five areas that were looked at and although the responses were generally split equally between two options, be it energy companies, taxpayers or consumers, there were a range of views as to why participants felt each option was appropriate. The one exception being supporting people in fuel poverty, where the vast majority of participants felt this should be the responsibility of taxpayers. The main responses are summarised below:

Page 236238 of 298 Building new power stations

Responses were equally split between energy companies and taxpayers: - Energy companies – if they are going to be making profit from them, they should have to pay for them;

“If we are going to build them [power stations/infrastructure] out of taxation, then let’s charge them [energy companies] a rental fee for using it.”

- Taxpayers should also cover some of the costs because power stations are of national strategic importance, so taxpayers should invest in them.

“The sources of energy belong to us all and we all need them. Therefore essentially my answer to all these would be the burden of this is on all of us, that is to say is on the state.”

Building new electricity infrastructure:

- Taxpayers should pay and there should be a single, taxpayer funded generation system. This would ensure there was accountability and it is easier to address concerns to one point rather than a range of commercial bodies. It would also provide more protection in terms of energy security;

“I’d let the near-privatised monopoly wither on the vine and build new publicly-owned infrastructure alongside it.”

“We all use it, we should all pay.”

- The costs of generating and distributing energy should be split between consumers, energy company shareholders and the taxpayer, but that the current split is not a fair one.

“The whole society has a stake in this. If fuel and energy is running out in its various forms, then we all have a stake in that. Whether it is Government, taxpayer, consumer or producer.”

- There was some agreement that energy companies were not paying their fair share of the costs or, in some cases, of tax by holding money offshore. There was also a view that energy companies should have to lease any parts of the energy system infrastructure that had been paid for by the taxpayer; - Some felt that energy companies were not dissimilar to manufacturers, so it should be their responsibility to pay for the infrastructure, much as you would expect a manufacturing company to pay for a factory.

“Power stations are a manufacturing unit and any company that manufactures something is manufacturing it to sell it. Therefore, it is up to the manufacturer to build the premises … you don’t expect the people who buy the product to subsidise building the factory.”

Page 239237 of 298 Installing smart meters in homes and businesses

There was an approximately equal split between participants who felt that the cost of installing smart meters should be borne by either taxpayers or consumers, although a small number of participants did not complete this section as they did not want smart meters in their homes: - Taxpayers should pay – if it is a Government policy then the Government should pay because if energy companies do then it would look like there was an ulterior motive as, on the face of it, there is not benefit to them from installing them;

“People who need smart meters the most haven’t got the money to install them on their own.”

- Consumers should pay – it will benefit them by giving them a more accurate bill, so they should pay; - Some individuals did not answer because they did not want a smart meter as they didn’t feel that the Government or energy companies had addressed the privacy issues properly. In one of the groups there was limited understanding of the other aspects of smart meters in terms of sending and storing information or limiting energy consumption.

“I’m not at all clear I want a smart meter at all. One of the main features of smart meters is the ability to do remote disconnection. That’s one of the main reasons, it’s a way of enforcing bill payment and I am not at all sure it is really a benefit to the consumer.”

Making energy efficiency improvements to homes and businesses

Again, there was a roughly equal split in responses here, this time between consumers and energy companies: - Consumers should pay – it is your home so it is up to you to make it energy efficient. You are investing in your own infrastructure and you are getting the benefit from it; - Energy companies, otherwise those in rented accommodation are at a disadvantage - there is no incentive for landlords to increase energy efficiency, so tenants are left with very high bills.

Supporting people who are living in fuel poverty

As mentioned above, the vast majority of participants felt that it should be taxpayers who paid for this option, with a small number feeling that energy companies and consumers should also contribute: - Taxpayers – the benefits system is already in place for those living in fuel poverty and if somebody is in fuel poverty, it is not the fault of the energy company; - It depends on the reason for fuel poverty – the pre-payment meter system pushes people into fuel poverty, so it should be the energy companies that pay.

Page 240238 of 298 “All three [taxpayers, consumers and energy companies] should share the social responsibility (for those in fuel poverty) because like it or not we live in a society where some people at the lower end for whatever reason are not able to pay for energy. I know there’s a lot of abuse in the system, but there are people who simply haven’t got the resources.”

Other points

27. Over the course of the three sessions, a number of points were made that were not directly related to the activities/discussion, but were nonetheless relevant to the inquiry. These points are summarised below, with relevant quotes:

• There was quite warm support for a move towards more community-based energy generation schemes; • There were mixed views on who should be responsible for informing consumers about energy issues. Some stated that it was the responsibility of individuals to inform themselves and not of companies to inform them, whereas others felt it was an issue of regulation and holding companies to account. There was a feeling that it was not in energy companies’ interests to help people become more informed and that such companies therefore were not best placed to inform people.

“I don’t see any benefit to any company trying to make consumers more informed about the decisions they make … it is our responsibility.”

“The problem for me on this one is that I have a general feel about what is right and what’s wrong about prevention and consumption and things like that, but when I get a bill through my door I do not understand it. I get confused because of the marketing and the telephone calling and this, that and the other. I don’t know what to look for and I don’t trust them. That’s the problem; I do not trust these people whose primary motive isn’t about my welfare or my lower prices, it’s about shareholder profit.”

“I think that people can look for information if they really want to. It’s not the responsibility of any organization or business to make sure their customers are informed. They’re trying to make money of us, so why should they care? If we want to do something about … how much money we have to pay towards something, then we should look for it. I don’t think it’s their responsibility for them to teach us anything.”

• The issue of the Big Six dominating the market and creating “an illusion of choice” came up again and again. Several participants had switched to smaller companies such as Co-op Energy, Ecotricity and Good Energy. The main motivations for switching discussed were: saving money on bills; not having to pay by direct debit; and supporting renewable energy.

“Are the smaller companies able to grow? Because the big six control most of the generating capacity. How much more genuine, open market electricity is available to the smaller companies.”

“We just switched to Co-Op Energy, which is a county society so the knock on effect was that we found our bills went down by about £120 a year. But the other effect is that I’m actually an owner of that company; I can go to the Society’s AGM and have a say.”

Page 239241 of 298 • There was some discussion about reducing consumption by making homes more energy efficient. There was general agreement about the importance of insulation and some discussion about the role of landlords and local authorities in increasing energy efficiency. One suggestion was that landlords should be forced to insulate rented homes.

“I used to live in social housing and it was terribly badly insulated and it crippled the people who lived there with the bills … If you put that money in when you build it, you recoup it forever, over the life of the building. I think there should be tougher regulations that should go onto the house builders.”

Conclusions

28. At all three events there were concerns that, under the current system, energy prices and energy bills were going to go up. There were a number of conflicting options suggested to prevent this price rise, but across all the discussion groups, it was felt that price increases could be avoided by exploring and investing in a range of measures both in increasing wholesale energy generation and reducing energy consumption.

29. Generally, the groups felt that the cost of more strategic projects like infrastructure and power stations should be met by a combination of the energy companies and the taxpayer, but not from levies on energy consumers’ bills. Participants felt that that individuals who own their own homes should be responsible for energy efficiency measures but there should also be a push from Government to encourage landlords to make energy efficiency improvements in their properties. All groups agreed that the onus was on the taxpayer to support those in fuel poverty and there were widespread concerns that, without comprehensive investment and a more effective long-term energy policy, the number of those in fuel poverty would continue to increase.

30. It was also agreed that it would be a positive development if smaller companies and community generation schemes played a larger role in the energy market, and that installing insulation was the best way of increasing energy efficiency in the home. In that regard, local authorities, landlords and Government regulation regarding new builds were thought to have an important role to play.

Page 240242 of 298 Group 2: Bills and Switching

31. 27 people undertook these activities. The majority of participants were middle aged, but there were also some younger people. There was a roughly equal split between men and women. participants were from a range of backgrounds, including retired people, energy professionals, a local councillor, an ex-member of the Green Party and an engineer. There was also one participant who had volunteered with the Banchory Energy Reduction Initiative (BERI).

32. The purpose of the activities was to test “energy literacy” and explore how much participants knew about the ways in which they use energy and the associated costs. We were also interested in whether participants knew roughly how much money they could save by using energy more efficiently and if they had the necessary skills to switch energy supplier.

Activity 1: How much do people spend on energy?

33. In this exercise, we first asked participants how much they spent on energy in their homes per year. We then asked the groups to complete a worksheet guessing how much the average household spends each year on different things, with the knowledge that the average household spends approximately £1,252 per year on energy5.

34. Within the general discussion, there was a lot of interest across the groups in reducing energy use and their energy bills. All participants agreed that their energy bills had gone up in the last year. Some participants spent up to £3,000 a year on gas and £700 a year on electricity, although they accepted that they had higher than average energy bills as they lived in listed houses so were not able to take advantage of some energy saving measures such as cavity wall insulation and draught proofing.

“Far too much. My husband is an accountant and he does all the bills, but we are constantly being asked to up our direct debit … but our pensions are pretty static, we don’t get rises on our pensions even though all the services are going up. Where does it come from? Where are we supposed to find all the extra?”

35. Another concern was the impact of rising energy prices on those who are on fixed incomes, such as those claiming benefits and pensioners. Some participants (who were pensioners) had tried to improve the energy efficiency of their homes to reduce their bills. However, they claimed that this had had little effect and the prices have continued to rise despite their efforts.

“We’ve got a fairly modern house and have done all the bits (double glazing, cavity wall insulation etc.) and we pay about £1,500, but I am surprised that even though we’ve done all these things, our bills are still going up.”

5 This figure was sourced from USwitch and was based on the dual fuel bill of a three bedroom semi-detached property with gas heating. http://www.uswitch.com/gas-electricity/guides/utility-bills/#step9

Page 241243 of 298

36. One participant noted that increasing use of electronic devices and gadgets meant that even though we might be more efficient, our overall consumption of energy was going up. This correlated with the results of the worksheet exercise, where participants underestimated the cost of using things like computers, printers and other electronics. Likewise, some participants said that the current energy efficiency ratings on appliances (A+, A, B etc.) were not helpful and it would be more useful if appliances were labelled with what they cost to run. This would encourage people to buy potentially more may appear at first glance to be more expensive models because it would be clear that their long-term running costs were cheaper than less efficient models.

“I suspect that we do some of the big jumps, like loft insulation, then we lose it all by some of the consumer habits that we have.”

“I don’t think, as a society, we have very good mechanisms for actually saying what the annual cost of running something is. I mean I know there are these charts when you buy something, but it doesn’t actually say, if you buy that it will cost £50, rather than £100 … it’s not clear.”

Participants were then asked to complete the worksheet. The possible options and answers are explained in the table below. The results of this exercise are displayed in the table below, with the lowest estimate, highest estimate and average in bold. The actual answer has been added to the table in italics.6

Activity Estimated cost per year Heating Lowest estimate = £375 Highest estimate = £800 Average = £605 Actual figure = £520.38 Fridges and freezer Lowest estimate = £31 Highest estimate = £100 Average = £62 Actual figure = £86.73 Lighting Lowest estimate = £75 Highest estimate = £250 Average = £120 Actual figure = £99.12 Hot water Lowest estimate = £75 Highest estimate = £225 Average = £175 Actual figure = £235.41 Electronics (TV, DVD etc) Lowest estimate = £30 Highest estimate = £125 Average = £71

6 Figures were sourced from USwitch and are based on the dual fuel bill of a three bedroom semi-detached property with gas heating. http://www.uswitch.com/gas-electricity/guides/utility-bills/#step9

Page 244242 of 298 Actual figure = £99.12 Cooking Lowest estimate = £50

Average = £105 Actual figure = £49.56 Washing machine Lowest estimate = £25 Highest estimate = £100 Average = £61 Actual figure = £86.73 Computers and printer Lowest estimate = £20 Highest estimate = £125 Average = £51 Actual figure = £61.95

37. As shown in the table above, the group as a whole underestimated the cost of hot water and the use of appliances like computers, printers, washing machines, fridges, freezers and other electronics and over-estimated the cost of cooking (which was less than half of their estimate), heating and lighting.

Discussion: ways to reduce bills

38. In this exercise we asked the groups what they had done, if anything, to reduce their energy bills. There was a consensus across all three groups that they had undertaken a number of measures to reduce their energy consumption and were ‘on board’ with the concept of saving energy, for financial as well as environmental reasons. 39. A number of different measures had been taken by participants, from reducing heating costs by wearing more layers and installing heating controls to buying more energy efficient appliances. Across the groups, a number of participants had undertaken more substantial energy saving measures such as installing double glazing, cavity wall insulation and loft insulation. Two participants had ground source heat pumps and another two participants had photovoltaic panels on their roofs. There were mixed views about solar panels, with some participants believing them to be an excellent investment and others feeling them to be a ‘con’ (see quotes below).

“Over the years, I certainly have [tried to cut my energy consumption]. In the 70s and 80s it was insulation of the loft and cavity wall insulation. In the 90s it was double glazing and I replaced the boiler in the year 2000 to a more efficient one and then thermostats on the radiators. So one does these sorts of things over a period of time.”

40. Most participants felt that the key to reducing energy consumption was to ensure that new homes were built with appropriate energy saving measures e.g. double glazing, insulation, heat pumps etc. Many also felt that it would be helpful to have a breakdown of the prices of different appliances/functions (as in the worksheet in the exercise above) within your electricity bill, so consumers had better awareness of which appliances used the most energy.

Page 245243 of 298 “I think it would be nice if all the figures for the energy usage of different devices was on your electricity bill, so you can actually see directly how much this is going to cost and also the figure on there for example of how much we are paying to subsidise the green energy schemes … wouldn’t it be nice to itemise everything on your bill?”

41. Likewise, smart meters and more accessible placing of electricity and gas meters were recommended so that consumers can see how much energy they are using at any time. Although in other activity groups there was some scepticism about the use of smart meters, within the three groups that undertook these activities, there was a consensus that smart meters were a helpful tool which would allow consumers to better understand the energy consumption within their homes.

“I have a little meter and it’s interesting, because I do watch it. As soon as I put my iron on I notice it. It’s quite fascinating.”

42. It is also worth noting that in one group in particular there was a sense of “efficiency- fatigue”, with many feeling like they had already done all they could to reduce their energy consumption.

“I’ve got double glazing and I’ve had the cavity wall thing but I don’t see what else I can do. I don’t know.”

“We don’t know what more we can do that’s reasonable to retain a decent standard of living.”

43. Within this exercise, the groups also discussed switching energy suppliers. Across the groups, switching was not spontaneously mentioned as a measure to reduce their energy bills. However, when asked there was a varied response to the idea of switching but at least two members of each group had switched their energy supplier in the last year, and others had switched previously. Of those that had switched, many had used comparison websites and saved money (with specific examples up to £120 a year).Two of the participants said they switched energy suppliers every year and made savings each time.

“I switched a couple of years ago and also have done it in the past … I think it was about £100-120 saving the first time and then the next switch I saved another £80 so it is actually worthwhile doing it.”

“In my personal experience it was dead simple but I might have been lucky.”

“I moved to Suffolk five years ago and in all that time I’ve been with E.ON and I have to say that three months before my contract period is up they’ll write to me, setting out the terms of the best offer available at that point for the new contract. They have never ever just let it run over and bumped up the price and each time I’ve got a better deal than the previous time against the current market because I always then check it on the internet.”

44. Among those who had switched, some participants said that they had found the process simple and easy to do. However, the majority felt the experience had been difficult and unnecessarily complicated. There were a number of individual examples (which can be found in Annex 1) but the general view was that it was difficult to know

Page 244246 of 298 where to get ‘impartial’ advice and that the number and complexity of tariffs put them off.

“I’ve been thinking about changing my energy supplier for quite some time… the first thing is you stay on the phone for ages before you can’t actually speak to someone. After that there is going to be all these calls and changing of details. I couldn’t be bothered.”

“Well people have the choices that they make are not always what the academics think they’re going to do. So they think “oh, they’ll go and get the best deal” but they don’t. They just want to stay and get on with things. They’re not going to switch because they’re going to save £10, they might switch if they’re going to save £500.”

“I haven’t switched because I don’t think I’m going to be saving very much by doing it.”

45. A standard complaint was that when you switch suppliers, you would be tied in to a lower priced tariff, but when this tariff runs out, the suppliers automatically move you to the “standard” tariff, which was often considerably more expensive than the tariff they had been on. In one group it was suggested that there should be a price maintenance system, where the best price was offered to all customers so there would be no need to change supplier.

“It’s time consuming. It’s a minefield. My husband always leaves things about the house to me and I build myself up for a couple of days to actually sit down, I’m not being overdramatic because it’s true, to actually sit down. And I think, this is going to take me all day, but that’s fine, because you’ve earmarked this day and you’re going to do it and I stick with it and sometimes I do save £50 or £100. But you might get locked into a tariff where you’re saving, and you’re locked in for two years, and halfway through that, it’s going to go up. It’s Catch 22 … so all that time and energy.”

“I came to the end of a fixed price deal and they put me on a standard tariff. Well I happened to know that the Standard tariff, with all of them, is the most expensive so I went on to USwitch, found the cheapest deal that was around and then phoned them up and said “Can you match that” and of course they could.

46. Every group suggested that it would be much easier for the consumer if each company had a limited number of tariffs, with most favouring a single tariff. One group even felt that there should be a single tariff across all the energy companies. Alternatively, some felt that there should be a standard charge per unit of energy, much as there is when buying petrol (e.g. petrol is always charged in £/litre). This would make is much easier for consumers to compare different tariffs.

47. Many participants felt that most consumers do not have the level of knowledge to participate in the market effectively, with the complexity of the pricing structure of energy companies acting as a barrier to consumers ‘shopping around’. Some attendees felt that it shouldn’t be necessary for consumers to switch; energy companies should be offering their customers the best deal in the first place.

Page 245247 of 298 “I don’t understand the tariffs. I’m easily intelligent enough; I’ve got a PhD, and for people in general it’s terrifying because you look at the bill and you simply can’t understand what it’s trying to tell you.”

“This whole thing about switching supplier, maybe the question I’ve got to ask is: why not discount everybody, right from the start? They are perfectly capable of doing it, so what’s the point of having these excessive rates, when the reality is they can offer you discounted rates right away?

48. Furthermore, some felt that it was not appropriate for energy to be sold in a competitive market. Across all three activity groups in all three locations, there were a large number of participants that felt that the energy sector should be nationalised.

“I’m one of the world’s probably most right-wing capitalists ever, but as far as I’m concerned, gas should be in national hands, electricity should be in national hands.”

“We employ a Government to look after the basic infrastructure of the country and that’s its job in life.”

Activity 3: Energy efficiency

49. In this exercise, the groups were given cards showing different energy efficiency measures and were asked to put them in order from those that saved the least money to those that saved the most. The measures written on the cards included: loft insulation, cavity wall insulation, washing clothes at 30 degrees, double glazing switching off lights when you don’t need them, drying clothes on a washing line instead of using a tumble dryer, replacing all incandescent light bulbs with energy saving light bulbs and turning off appliances at the socket when not in use. One group also added some energy saving measures of their own, including water tank insulation, draught proofing, reducing the temperature on the thermostat and buying a more energy efficient fridge, which they also included in the exercise. Participants were then asked how money each measure would save in a year.7

50. All three groups agreed that loft and cavity wall insulation would save the most money, with two of the groups putting loft insulation first and cavity wall insulation second. The remaining group put loft and cavity wall insulation in joint first place.

51. After loft and cavity wall insulation, all three groups agreed that double glazing would be the next best energy saving measure. After these three measures, the groups did not agree and there were mixed views about which of the other measures (switching off lights, switching off appliances, using energy efficient lightbulbs, washing at 30 degrees and using a washing line) would save the most energy. The only agreement

7 These figures were taken from the Energy Savings Trust: http://www.energysavingtrust.org.uk/Publications2/Corporate/Research-and-insights/Savings-and-statistics-for-Great- Britain-media-factsheet-2011-2012

Page 248246 of 298 was that switching off lights and switching off appliances would be the two measures that saved the least energy.

52. Once the groups had put the measures in order, the results of which saved the most energy (and how much money each measure would save you per year) were revealed to the group. The answers (taken from the Energy Saving Trust) are in the table below.

Measure Saving per year

Adding loft insulation £175 per year

Cavity wall insulation £135

Double glazing £160

Turning off appliances at the socket when £35 not in use and avoiding standby

Replacing all incandescent lightbulbs with £30 energy saving lightbulbs

Drying clothes on a washing line instead of a £17 tumble drier

Washing clothes at 30 degrees rather than £12 higher temperatures

Turning off lights when you don’t need them £8

53. As shown in the table above, the groups were all correct in the top three energy savings measures and one of the least energy saving measures. However, all three groups underestimated the amount of energy that could be saved by switching off appliances and were surprised to hear how much money this measure could save. They were also surprised that drying clothes on the line did not save more money.

“What surprises me is that for that little saving, the EU forced those bloody lightbulbs on us.”

“£17?!?! So you mean to tell me that for forty years I have been hanging out my washing when I could have been tumble drying it!!”

“Something that isn’t here is the use of laptops and computers and I’ve heard that every time you send an email, I don’t know if this is true, it’s the equivalent of boiling a kettle.”

54. All participants agreed that insulation was the key to saving energy (and money) but many were concerned that many homes were not able to make use of these measures (e.g. hard to treat homes, listed homes and rented accommodation). Likewise, many felt that energy efficiency initiatives tended to focus on easy to treat

Page 249247 of 298 homes, so those who live in harder to treat homes aren’t able to benefit from the schemes and often can’t afford the upfront costs themselves.

55. Across all three groups, there was some scepticism about the figures provided for the activity (which we informed them had come from the Energy Savings Trust), with a consensus among the group that there was no such thing as an average household. Factors such as the physical fabric of the house, whether it was connected to the mains grid, the size of the household and the lifestyle of the household meant that it was difficult to say really how much people could save from the measures. For example, one participant suggested that a household with lots of children would probably save a lot more from stopping using a tumble drier than the EST figures suggested.

“I don’t think the Energy Savings Trust does much washing.”

Other points

56. As mentioned above, there was quite a lot of discussion among all three groups about solar panels and whether or not they were affordable. There was a variety of views, with some feeling that they were a good investment and some not thinking the investment was worth the return. There were also others who were concerned about potential distributional impacts because people on lower incomes who cannot afford solar panels are subsiding those who can through the feed in tariff scheme.

“Electrical solar panels with a feed in tariff of 43p per kWh is a fantastic way of getting poor people to subsidise rich people through their electricity bills and it is totally immoral. The cost of electricity is about 9p or 10p per kWh and we’re paying rich people with nice large roofs facing south 43p when they sell it to the electricity company who then have to of course get the money back by loading it on the bills of the rest of us.”

57. There were also concerns about the obligations of landlords to install energy efficiency measures in rented homes. Participants felt that there is currently very little incentive to have loft insulation and other measures in your home if you do not own it, but there is no onus on the landlord to do so. As a result, the rented sector is not as energy efficient as it ought to be and those in rented accommodation suffer with higher energy bills.

“What happened to my daughter is that they got loft insulation put into their rented student house and now at the end of this year the landlord says ‘now it’s a better house, I’m putting the rent up’.”

Page 248250 of 298 Conclusions

58. Across all three events, there was a great deal of consensus on the main issues. All three groups said that their energy bills were increasing, often in spite of having taken actions to try and reduce their energy consumption.

59. All participants agreed that there was a need to reduce energy consumption, both their own and in general, although for the majority this was motivated by financial rather than environmental reasons. The majority said they had taken measures to be more energy efficient, with many having had more expensive work such as loft insulation and double glazing done on their homes. There was concern for those who were not able to make use of energy efficiency measures, whether it be through not being to afford them or not owning their own homes and it was felt that the Government and energy companies should do more to help these consumers.

60. A large number of participants had attempted switching energy supplier, with varying levels of success. There were some who felt they engaged with the market, shopping around regularly to find the best deal. However, the vast majority had either had bad experiences or were too confused by the system to try. The groups came up with a number of suggestions as to how the pricing and billing of energy could be simplified to make it more accessible to consumers.

61. Across the group, there was a good knowledge of which energy saving measures would save them the most money, although all groups were surprised by the amount they could save by switching off appliances at the socket when they are not in use. The groups also had discussions about alternative ways of saving/producing energy, with many having views on solar panels and other electricity generation.

Page 249251 of 298 Group 3: Sources of information

62. A total of 34 people undertook these exercises8. Of those 34, there were more men than women and, as is the case for the other activities, most participants were middle aged or over. However, there were some participants who were younger and four of the participants for these activities were students. Some had professional energy backgrounds, there were two energy consultants and three worked in renewable energy companies (one in solar, one in biomass and the third did not specify). There were also local councillors, university staff, a representative from Age Concern and somebody who had campaigned about energy and climate change.

63. The purpose of the activities within this section was to find out what preconceptions participants had (or didn’t have) about various aspects of the energy market and what role the media played within that. We also wanted to discover which organisations/bodies consumers trusted to provide accurate information and where they would go if they were seeking information about energy issues.

Activity: which of these statements do you think are true and which false?

64. For this activity, participants were given a worksheet with a number of different statements, which were taken from different sources, and asked to say whether they thought the statements were true, false or if they didn’t know. The worksheet did not include the sources of the statements.

65. A table with the statements and some of the answers we received is below, with the most popular response written in bold and the source of the statement written in italics9:

Statement Response

Hidden green tax in fuels: £200 stealth True: 2 charge is slipped on to your gas and electricity bills. False: 4

Daily Mail Don’t know: 3

The average net [profit] margin on a typical, True: 5 standard tariff dual fuel customer has fallen from £125 to £105 False: 1

Ofgem Don’t know: 3

By 2020, household bills are expected to be True: 1 7% - or £94 – lower than they would

8 This number is slightly higher than the other groups because in Banchory the audience was split into two groups rather than three and both groups undertook some of the exercises. 9 Only 26 of the 34 completed this exercise and some of the answers do not add up to the total number who did the exercise as we were not able to collect all of the worksheets.

Page 252250 of 298 otherwise be without Government policies False: 6

Chris Huhne (when SoS for DECC) Don’t know: 2

Household energy bill increases are caused True: 4 primarily by rising cost of gas, not environmental policies False: 3

Committee on Climate Change Don’t know: 2

The myths are that [energy company] profit True: 8 margins are huge. Customers write to me all the time and say, ‘Your profit margins are False: 1 huge’. Our profit margins are 5% Don’t know: 2 (Phil Bentley [British Gas] in the Telegraph)

Windpower: 66% of the public in favour True: 5

Ipsos/MORI poll False: 2

Don’t know: 2

Windfarms are inflating energy bills True: 7

The Daily Telegraph False: 2

Don’t know: 0

The average energy bill has risen by £150 in True: 5 the last year, and £100 of that is due solely to the rocketing price of gas. False: 1

Greenpeace Don’t know: 3

66. When statements included figures, many of the participants felt that the statement was true, but were not sure about the figures. For example, many believed the statement from the Daily Mail, that green taxes inflate bills, but didn’t believe that the figure of £200 could possibly be accurate, so marked the statement as a whole as false. However, some participants felt that this statement was a good example of the lack of clarity from the Government on the levies/tariff surrounding energy generation and consumption.

“The biggest problem… is that the Government is not being clear on exactly how many tariffs (levies) are being applied to my energy bill and what that’s going to…. It would be helpful if we had some correct analysis of what tariff [levy] is being applied to our bill and what that is being used for.”

67. Likewise, many participants felt that the statement from Ofgem was true before they knew it was from Ofgem. Once the identity of the source had been revealed, participants voiced a concern that while Ofgem might be making such statements in

Page 253251 of 298 good faith, the information on which it was based—provided by energy companies— might be inaccurate. Therefore it might not reflect a true picture of company revenue, outgoings and profit.

“I recognise Ofgem as being a source of information that should be accurate and correct… and I think the information they receive from suppliers is misleading and therefore the statistical analysis that they are able to do with the evidence given to them led them to a conclusion that was not accurate or correct.”

68. Generally, belief in the statements went down when the group found out the source was media; the Daily Mail and the Guardian were particularly distrusted. Likewise, when the Government was revealed as a source it was met with distrust, particularly the figures that were used, as it was felt that the Government could pick and choose what statistics they use and ‘massage’ them to suit their purpose.

On the Chris Huhne quote: “Nobody on God’s earth could predict anything to two significant figures like that. You might say “around £100” or “around £150” but you can’t just say “£94 in 2020”. That’s absurd.”

“It’s still a newspaper, they’ll print what they want, if they think they can justify the printing…”

69. The statements about energy bills from the Committee on Climate Change and Greenpeace were also generally believed to be true, although most participants said that this was because they had the direct evidence in their own energy bills that this was the case. When Greenpeace was revealed as the source of the statement, many participants weren’t sure whether to trust it, although most participants trusted the Committee on Climate Change, even when learning it was a statutory body.

70. There was widespread agreement among the groups that windfarms are inflating energy bills, although most thought that windpower/windfarms would be unpopular with the public. Even when it was revealed that the survey was taken by an independent polling organisation, participants wanted to know where the survey had been conducted and felt there was a possibility of “NIMBYism”; some said they wouldn’t be surprised that a large amount of the population thought that windfarms and windpower were a good thing, so long as they weren’t sited in their areal

“Every time I turn on MoneyBox on my radio or I listen to the financial news on the television, what I hear is that BP, Shell and all these other energy companies say that they are getting, yet again, record profits and they are recording that profits are up, that’s all I ever hear. So how can their profits be going into up if they aren’t making more money from the people they

Page 254252 of 298 are doing business with? It’s either that or the cost of providing whatever energy source they’re providing is going down and they aren’t passing that on the consumer.”

72. When presented with the sources for the statements, many participants said that they felt overwhelmed by the number of contradictory messages that were being projected about energy costs and use. Some participants argued that there was no such thing as an impartial source and that every organisation within this exercise had its own agenda.

“I think we haven’t got an impartial source. Every source has got their own agenda in some way. There isn’t that clear, completely neutral, objective look at it, so who do you believe?”

Discussion: Sources of information

73. For this section, we asked participants a number of questions about where they get their information about energy prices from. We specifically asked the groups which organisations they would go to: • if they wanted to find out whether their energy bill was reasonable? • if they wanted to find out how much of their energy bill was due to ‘green’ measures? • if they wanted advice on how they could save money on their energy bill?

74. Many participants said that they mostly used the media to find out information about energy bills, but combined this with other sources, such as word of mouth; people would trust a friend’s experience of an energy company or a good deal on energy bills. That being said, when asked where they would specifically go to find out if their bills were reasonable, many participants said that they would first look online, preferring to use price comparison websites. Some participants were concerned that people use price comparison websites with the assumption that they were independent and impartial, when that isn’t necessarily the case.

“Comparison websites are good, they’ll give you a steer and then you can use the internet to research by going on to the different companies’ websites. That’s certainly what I’ve done two or three times over the last couple of years and I’ve actually ended up staying with the same supplier.”

“But they [comparison sites] do get paid and the way they earn a lot of money is by people switching. So they’re not totally independent and they don’t have all the tariffs there. There’s some suppliers, not in the energy market, but insurance for instance, there’ll be some companies, like Direct Line, who just won’t be there, so you will have a missing part of the mixture there.”

75. All participants said that they felt it was necessary to consult a number of different sources in order to get information, as they didn’t feel they could trust any single source to give them accurate information. Many said they preferred to look at a number of different sources and see what information was common between them.

“You don’t believe any one source individually. You use one and check it against something else, using a broad base from what you’ve gleaned from the computer, the media, it’s a combination of everything.”

Page 253255 of 298 “I think if we had a situation where you could address the companies directly and say ‘I’m the consumer, I consume this amount, I’ve got a track record with this … What can you do me for?”

76. When asked about where they would get information about green measures, most participants agreed that there was a lack of clear, accessible information about a whole range of green information. They felt that the information that was available was often either too technical, or ‘loaded’ and could not be relied upon. Conversely, they also felt that when asked questions, energy companies ‘bombard’ consumers with masses of complex information which it is difficult to decipher.

“What this shows to me is that there is a lack of information about the whole range of issues and that it becomes quite easy for the energy companies to hide behind this whole screen of information.”

“I think the basic problem is that for a commodity, the underlying pricing structure of the energy industry is mind-bogglingly complex. Stupidly complex.”

“The other big beef I have with energy bills is that they are ludicrous in the way they’re set out. I’ve been an accountant all my life and I cannot believe that you can’t create an invoice, when you’re buying something like that, that starts with a reading and ends with a reading and tells you how much you’ve used and if there’s an estimate somewhere along the line builds that in. It’s not very complicated and yet I’ve never seen one. It’s hopeless.”

77. As has been mentioned earlier, throughout the groups there were many that had strong (and varying) views on climate change. However, one aspect that was common across the groups was that those who were ‘unsure’ about climate change did not feel that there were any organisations they could trust to give definitive, accurate information about energy and climate change, as they felt that everyone had a vested interest. They felt that there ought to be an independent pool of experts that the public can trust.

“I don’t think there’s a definitive source of accurate information. You’ve got to read half a dozen different views of the same thing and see where there might be a consensus.”

“When people speak, they speak through vested interest.”

78. The consensus among all three groups was that most people did not have access to the information that they needed. Whilst they felt that they could trust some organisations to be independent (such as Which?, Citizens Advice etc.), they didn’t necessarily think that the advice they give would be accurate. Likewise, they didn’t feel that either of these organisations had the expertise necessary to give them the advice they needed. A small number of participants said they had contacted the Energy Saving Trust and were concerned that not enough people knew about them.

“The problem with deciding is that we haven’t got that pool of independent experts that we can draw on at the moment. Not that me, a member of the public, has found.”

Page 254256 of 298 “The key question I have is why isn’t the Government forcing Ofgem and why isn’t Ofgem forcing the suppliers to simplify their tariffs? That’s the underlying problem. It’s ridiculously complicated.”

“Energy Savings Trust is independent of any company, so is Which?”

Activity: Who do consumers trust?

79. In this section, each group was given a display the names of different organisations associated with the energy industry. Participants were then given three stickers each and were asked to put one against the three different organisations that they trusted the most when getting information about energy issues.

80. The organisations and the number of stickers that they each received are written in the table below.

Organisation Number of votes

Committee on Climate Change 11

Which? 17

Citizens Advice Bureau 5

Ofgem 5

Energy Companies 2 (1 for Eon specifically)

Department of Energy and Climate Change 6

USwitch 5

Energy Saving Trust (EST) 11

Comparethemarket.com 8

Other 3 (for SCARF)

81. As shown in the table, the top three most trusted organisations were Which?, the Energy Saving Trust and the Committee on Climate Change. The inclusion of Which? and the EST largely correlates with the discussions that were had earlier in the exercise. However, the inclusion of the Committee on Climate Change does not. When asked about why they said they would trust the Committee on Climate Change, most participants said that although they may not have heard of them, they would trust an apolitical statutory body and would hope that they would be the pool of impartial experts that they felt was required. It is also worth noting that some members of the groups were not aware of the Committee on Climate Change and the difference between the Committee on Climate Change and the House of Commons Energy and Climate Change Committee had to be clarified.

Page 257255 of 298 82. However, although three organisations were clearly more trusted than others, many participants still felt uncertain as to where to go for particular information and who they can trust. One participant felt that the exercise highlighted who they could not trust, rather than those that they could.

“It demonstrates a lot of uncertainty of where you do go and who you can trust.”

“That is the problem; we’re all very confused about the whole issue. We don’t really know where to go to get an accurate answer.”

Other points

83. As with the other groups, there were also a number of other subjects raised over the course of the discussion which were not directly related to the activities, but were still relevant to the exercise as a whole.

84. Within one group, there was much concern about the way energy companies targeted older people. There were a number of specific examples (see the quotes below) but generally participants felt it was unacceptable to use cold calling as a marketing tool and that it places unwelcome pressure on older people because they often feel as though they are being bullied. They also felt that many consumers were unsure of what they could do to prevent cold calling and there was a lack of information available in this area.

“So many older people live on their own, so they are particularly vulnerable… Cold calling is so common now and some people seem to get badgered more than others… why should someone in their 80s have to cope with this when all they want is to be warm?”

“Older people are … people who are really distressed when they feel they are being bullied into doing something and all they want to do is to put the phone down. They don’t like to be rude and so they agree, just to get rid of the person who’s calling and then they find that they’ve agreed to something and they didn’t know they’d agreed and they don’t know who to go to for help.”

85. A number of the students who attended the events also felt that they had been targeted by large scale ‘all in one’ utility providers, who are taking advantage of students lack of knowledge of the energy industry:

“We [students] often get targeted with utility warehouses, who provide everything in one hit and obviously just put a big premium on it but where others find it difficult to do because of all the barriers to information, we have zero experience and all the complexity, so we get cowboys on top of the normal energy suppliers, because it’s something you aren’t used to so you just go for the easiest option, rather than the price. So a lot of people end up going with multiple suppliers and paying high premiums. I think students should be considered as one of the more vulnerable groups.”

86. The groups also discussed green energy and how sustainable these sources were. There were a number of different views in this area, with one participant questioning the sustainability of alternative energy sources if they had to be subsidised. Another expressed concern that many green tariffs were not good value for money because

Page 256258 of 298 they were charging environmentally-minded consumers for something that companies had to do anyway under the Renewables Obligation. Many participants linked the need to explore renewable energies further to energy security and a lack of long term, strategic planning.

But realistically the only way that the wind turbine is working is because it’s subsidised. Now, it is basic common sense that if something is subsidised it is not sustainable. So, if it’s not sustainable, why are we actually going down that route or being forced to go down that route?”

87. The groups also discussed other energy sources, such as nuclear power and shale gas. Again, these were areas where there were diverse viewpoints, but where there was consensus about the lack of information about these alternative sources of energy. Many felt that nuclear power was being demonised and that there hadn’t yet been a balanced, informed discussions about the advantages and disadvantages of nuclear power. Likewise, when shale gas was mentioned by some participants (who were keen on it as a form of local energy generation) many said that they didn’t know the risks or the benefits so did not feel they could put forward an opinion.

Conclusions

88. The consistent and recurring message that came across throughout the exercises (and in many of the other groups) was that the vast majority of participants did not know where they could get expert, impartial advice about energy issues. Although participants understood that Ofgem was the regulatory body and is impartial, they didn’t believe it was an accurate source of information.

89. As a result, participants believed that many consumers rely on the media and comparison websites to get information about energy sources, energy markets or energy bills. However, there is an inherent distrust of information that is published in the media and many participants felt that comparison websites could not be relied upon to give impartial advice on what is ‘good value’. Furthermore, the pricing structure that underpins the energy system is so complicated that, even when using comparison websites, it is very difficult to know if what you are paying is reasonable and how to get the best deal.

90. All participants felt there was a lack of clarity from the Government regarding their energy policy and also a lack of long-term, strategic planning, which was putting the UK’s energy security at risk. All groups agreed that strategic investment in the UK’s energy generating infrastructure was essential not only to ensure that the UK’s energy supplies are secure, but also to protect UK consumers from rising energy prices.

August 2012

Page 257259 of 298 Further written evidence submitted by Parliamentary Outreach (CE 31a)

Annex 1: Additional quotes: Energy and Climate Change Committee, ‘Parliament Talks... Energy’ events.

Warm-up activities:

Messages to David Cameron:

“Concentrate on energy saving rather than carbon capture and all these things. Not just because we’re getting short of energy; we’re in a new economic situation which sooner or later people will start taking into account. Growth is a thing of the past, we’ve got to start saving energy.”

“Be prepared to regulate. Be prepared to be tougher.”

“Get rid of wind farms.”

“Build more nuclear reactors NOW”

“Tighten regulation or siting of wind farms – offshore not onshore.”

“Nuclear power please and/or tidal – sun doesn’t always shine and wind doesn’t always blow. Take agricultural land OUT of food production to grow feedstock.”

“The sun began all life, it is a huge nuclear reactor. Forget solar, go nuclear. And sod the polar bears.”

“Be bold. Take a long term, realistic view and introduce a meaningful energy policy that everyone can understand.”

“Expand nuclear power”

“Commission more nuclear provision NOW, using the smartest nuclear technology.”

“Keep your promise to be the Government yet – start taking the green agenda seriously.”

“Prevent the big six from exploiting vertical integration to lock out independent suppliers.”

“Get on and build new infrastructure.”

“Make it a level playing field for small suppliers e.g. Ecotricity.”

“Stop pandering to corporate greed.”

“Are you planning for the long term future rather than allowing energy companies to make a quick profit?”

“Have a coherent energy policy.”

“Pour support into wave, tidal and other water power research.”

Page 260258 of 298

Messages to energy companies:

“Redouble your efforts to support insulation projects and low energy appliance swaps.”

“Reduce your prices.”

“Cease having green subsidies.”

“Honest, open price transparency please!! Tariffs that everyone can understand.”

“I paid less the 1p per KwH for gas in 2001. Why is it now at least 3.2p/KwH when “Powers” say it has gone up by 80% in 10 years?”

“Be honest about the economics and include all the costs.”

“Reduce the cost!”

“Sell up and go home. Energy infrastructure is a strategic national asset.”

“Develop a standard form of pricing across the industry so that customers can compare each energy company’s product with competitors, just as the car industry do.”

“Need more transparency in charging regimes.”

“Make it simpler! Consumers are confused with the wide range of tariffs.”

“Forget green subsidies and concentrate on delivering a value for money service.”

Page 261 of 298 Group 1: the UK energy system – where do we get our electricity and heating from, and how much do we need?

Activity 1: Pie chart:

“That 46% is the Big Six’s idea of how they manage the market that they effectively control which isn’t really an open market with other players.”

“I think the profit margins at 46%, but they can’t be any lower than 19%.”

“I think people who don’t generally approve of the idea of profit vastly exaggerate their significance in the whole picture.”

“Profit margins should be around 9 or 10%, but they’re always pleading poverty though aren’t they, these energy companies.”

“I think a company operating at 6% profit margin is not going to have happy shareholders.”

“One of the fundamental problems I see is that the big six have got so much power over the Government. If that power was taken away, a lot of these issues would disappear.”

“I would have thought the 10% is supposed to be so-called renewable…. But the difficulty is whether that is actually happening.”

Activity 2: Discussion on the future of energy prices:

“I think they are going to go inexorably up because of global industrialistion … and I think the extra costs of building a sustainable source of energy from other sources, other than hydrocarbon, it’s not going to be cheap.”

“I can only see prices going up. I am very suspicious of anything that tells me “If we do this, bills can come down by 50%.”

“On performance to date, whatever government is in power, they can’t cut the mustard [on energy].”

“There is no long term planning.”

Reasons for prices going up

They are trapped so if they haven’t got the money to put on the card they go without. It’s not like other people that can still turn on a light and build up arrears on their bills; they can still keep warm. They don’t have any choice – no money, no electricity. No safety in terms of health and safety in terms of things like food in their fridge, let alone their heating. It covers a multitude of things.”

Page 262260 of 298 Investment:

“There’s also going to be a significant shortage of supply because we haven’t invested in replacement infrastructure for the nuclear power stations that go offline or for the old coal-fire plant that’s going offline … and so there will be a short term rush, companies will have to be bribed to put in extra capacity and they will take a big profit for doing that. We’ve simply failed to plan for the obvious reduction in generating capacity over the next 10-15 years.”

“I think some of the investment that’s going on at the moment will undoubtedly mean that prices will go up. Everywhere needs to be able to invest to keep their things running and to expand and to keep pace more than anything else, but I think it will certainly go up.”

Fossil Fuels

“If we build more gas powered power stations but gas is going to run out, what’s the point? That’s not the answer, building more infrastructure. The actual fuel is running out.”

“Fossil fuels will go up because it’s a finite resource, without any question. There’s no debate that it will run out at some point in time. Electricity will go up because we use fossil fuels to generate it and if we use nuclear power to generate it I believe that the cost of nuclear is about twice the wholesale price of energy at the moment. So I can only see the cost of energy going up. There might be short term reductions if there are shale gas finds, but generally, in my opinion, we’re using a finite resource, so the price will only go up.”

“Certainly because of what has rightly been said, fossil fuels are a finite resource, I can’t see them coming down. They have the potential to flatten out but in the short term they are going to rise, that’s for sure.”

“We’re running out of all these resources and they are still not priced at what they are actually worth. It’s still cheap compared to what it’s going to be in a few years’ time.”

“But it’s not simply a price supply equation, because the more fossil fuels we burn without some sort of capture system, which 2 or 3 years ago looked promising but now looks less promising and that may be because of lack of willpower, lack of investment to actually put it in to get the systems going. But the other element in the equation is carbon emissions.”

Renewables/green energy/energy efficiency

“As someone who has got solar panels on his roof … I think that cost for renewables will probably go up. They’re saying that the cost of panels has come down dramatically but I haven’t seen any evidence of that and I don’t think we know how long they will last. I did my calculations with the feed-in tariffs as they were and I thought that I would get a return after 8 years. But it wasn’t just that, I put them up to reduce my day to day household bills and also to reduce carbon emissions.”

“I think we should be putting up-front investment into alternative energy solutions to boost the economy.”

“We need to do a lot more of to make sure we use products that use less energy.”

“CO2 is not the bogeyman.”

Page 263261 of 298 “If the present Government, especially the Scottish Government, persist in their green policies, nor the UK Government hanging on the Climate Change Bill, which is going to cost us millions and millions and will not achieve anything economically worthwhile.”

“It will definitely go up; if you stick a wind farm out in the sea, transmission costs go way up, secondly the maintenance is going to be colossal because already the off-shore wind platforms are breaking up, they’re not properly built.”

“If you put some upfront costs into renewable energy, then you get free energy… you have to keep buying your coal, but you don’t have to keep buying the sun.”

“I think we need to be far more sustainable domestically. We should be looking at all that we’ve got; wind, waves ....”

“Green energy is just a way for the EU to tax us. The only way for the EU to tax us is by peddling this green issue.”

“I’m very suspicious about renewable energy – there’s no research done to tell us that it’s sustainable.”

“My suggestion would be that the emerging democracies in North Africa are changing the political scene there and for a very long time European and UK Governments have had relations with people in these nations over oil. Well the one thing that they have in abundance is sun so it seems to me that concentrating solar power there. Really an important thing would be having if the Government in the UK to talk to these emerging democracies about cable lines for solar power because there’s an enormous amount of power there which is going to be permanent.”

“We shouldn’t be running out, we should be changing over trying to invest in nuclear power.”

“There’s two overlapping issues here; one is the safety and mitigation against any risks associated with any means of power generation. But I think in the long-term, the biggest threat to the planet is actually global warming and climate change. Therefore we need to look at the whole range of power sources.”

“I do think that in the future we will come up with answers, including nuclear fission and I’m not against some nuclear power as well … but in the meantime, we have to have investment in what we have at the moment.”

“We have the potential to be neutral on these costs, but it depends on the political will to move forward on things like fracking and so forth.”

Activity 3: Who should pay worksheet:

Power stations and infrastructure

“A strategic partnership is needed.”

“I’d let the near-privatised monopoly wither on the vine and build new publicly-owned infrastructure alongside it.”

Page 264262 of 298 “Power is strategic so government should have input.”

“The lights will go out.”

“The thing that worries me is that a lot of our major power stations are now 10-20 years old but are providing the baseline load, we’ve got nuclear stations which are well past their design timeline and what’s being done to replace them?”

“It is up to energy companies and Government to take the lead in how best to create energy, but ultimately it has to be done efficiently and it always comes back to the consumer because he is the one who is footing the bill.”

Power stations and infrastructure

“It should be a combination of all three [taxpayers, consumers and energy companies] – everyone has a stake in it.”

“If it were to stay as it is now, new infrastructure for energy stations, it’s the generating companies and the other supply companies who are getting the benefit from that and making the profit, it should be them and their shareholders who are coughing up the money to get the return.”

Fuel poverty

“Obviously for supporting people in fuel poverty I would expect taxpayers to pay because they are more wealthy. But similarly making energy efficiency (changes) to homes, I would like everybody’s home to be more efficient.”

Other points:

“On the one hand I feel generally well informed, but on the other hand I feel like I am completely confused.”

“I think that we do have a degree of personal responsibility but I do think maybe we’re straying into the area of politics and regulation that the people who are out there, whether it’s your council or your MP, they should be able to get access to information and hold some of these people to account and ask the right questions.”

“I do think there’s a connection with some of these [energy saving measures] with the construction industry and house builders.”

“There’s another particular problem in the rented sector because of the different regulatory regimes between gas and electric fittings in rented properties, landlords have ripped out all of the relatively cheap gas heating and many rental properties are now electric only because it requires less inspection. For heating that is definitely putting the price up by getting on for a factor of three… all of that cost is being burdened on the tenants.”

“The council could enforce stricter rules on properties that are being paid for with housing benefits. There are already rules about fences for example in houses with children. Tougher rules could be imposed to ensure energy efficient heating and a reasonable level of insulation if the landlord wants to rent into that rather large sector.”

Page 263265 of 298 “There are things that make it (switching) simpler, but suppliers are allowed nevertheless to play unreasonable games with us. For example, the last supplier I switched to had the best deal, but I could only get on to that deal if I agreed to take that supplier longer for the period that that deal lasted, with no guarantee of what the price will be towards the end of the period … we need much tougher regulation from Ofgem to ensure that people have a realistic ability to move when prices change. There are delays in the system, there are automatic price changes and there are lock-ins, all of which should be forbidden.”

“The only option we’ve really got is to break away from the big six and look at other companies.”

“We’re halfway there because all houses have to have an energy performance certificate (EPC) now, so you (councils) could easily just say “From now on any new homes or any we commission to build will be a C or above” and then that will dramatically reduce people’s heating bills”.

“These energy companies do a lot of piecemeal schemes and say “We’ll do loft insulation in this area”, so landlords should be encouraged to go for these schemes and pay half the cost.”

“All the things we’ve been talking about, apart from nuclear, wave and wind are finite resources. We’re having to use more and more advanced techniques to get the oil out of the ground so we do need to seriously invest in alternative energies ... It’s ok if you’ve got a plan from 2020, but if you just say ‘oh, we’ll put it off until 2015 and when we get to 2020 we’ll put it off again and again and again’ until all the finite resources do run out, sorry, that’s not an answer.”

Page 264266 of 298 Group 2: Bills and Switching

Activity 1: Discussion on how much people spend on energy:

Cost of bills:

“In our house it just depends who’s coming to stay. If I have an aged in-law coming the heating goes up, it’s on much longer if it’s just us and our family. It’s very difficult to get an average because a lot of the houses round here are very difficult to heat.”

“In a year… [I pay energy costs of] near enough to £1,500. Living alone, for one person in a small house, on a pension, it seems a lot.”

“I spend about £3,600 a year on gas and about £800 a year on electricity.”

“I live in a big, old, draughty house that you can’t plug the holes in because it’s listed and heating it costs a bloody fortune.”

“Our meter reading is constantly either hugely in debt or hugely in credit, which is ridiculous because they (energy companies) don’t believe the meter reading.”

“Why can’t the Government cap prices? You know, cap them for a couple of years?”

“I have full electricity and it’s very difficult because it’s on, and then we had a nice spell of weather, but it’s not really economical to turn it off, to heat it all up again, so you’re better I think, I don’t know, maybe I’m wrong, to leave it on.”

“One of the big frustrations is any time you turn on the television, the national media focus on the price of electricity and the price of gas, which, just my own situation at home, I spend approximately £600 a year on electricity and £2,000 a year on oil … and this keeps going up.”

“Why doesn’t the price ever come down?”

Activity 2: worksheet on how much energy different appliances use:

“Yes, I would have thought that electronics would be a lot more.”

Activity 3: Discussion on how to reduce bills:

“I haven’t proved that it’s working, but I think that wearing lots of layers of clothes, cooking food quickly and things… I haven’t done any calculations but it’s just common sense.”

“Having better control of your heating system; knowing when they are going on and off and thinking when you really need them on. Just cutting it down to the very minimum.”

Page 267265 of 298 “I looked into replacing my boiler, which is a conventional boiler … it’s not a condensing boiler. When they came round, I was quoted somewhere in the region of £28,000 because I’d need two running in tandem, because the house is too big for one. At the time, the largest you could get was a 55kW producer and I needed 70kW of energy because of the house. Re-wiring, one had to be sited outside the boiler room, the other one had to be sited inside, with re-plumbing the entire house … It was a huge cost.”

“It’s worrying, because everyone has convinced us that it’s the green thing to do to buy a condensing boiler. I know though, that they are not made to the same standard that boilers used to be made to so how long is it going to last? It may be wonderful for the environment, but is it if we have to keep banging out the metal to replace the boiler every 5 years?”

“I think you’ve got to look towards general guidelines. I mean there are several sensible possibilities that you can implement in your own house, turning off the radiator or things that you’re not using, changing your boiler to a condensing boiler which is going to be a much more energy efficient, making sure that your windows are draught proof. The next step up is making sure your windows are double glazed and that there’s insulation in the roof space … if you deal with the real sensible things then a lot of things will sort of kick in. … these are all towards existing buildings.”

“Smart meters are the key. By smart meters I don’t mean anything terribly clever, just something that could be read remotely which is dead simple.”

“Electrical energy, about 60% if it, goes up the chimney in the power stations, but once you’ve got it, it’s extremely efficient. You can get all that (wasted energy) back again with the use of heat pumps, so heat pumps are an incredibly good idea, if you’re building a new house … but I don’t think you can retrofit houses.”

“Our future energy costs are based on the fact that everybody is going to halve their electricity/gas consumption and that’s not really possible.”

“People have already cut down to the minimal electrical cost. Right from the year dot when I was a kid I was taught to turn the lights off when you leave the room. We’re all already on board with these things and people have been for decades.”

“When we come to replace an appliance, we use […] low energy ones. We’ve learnt it’s not cost effective to hold on to old appliances, because they are using more energy than newer ones. It’s a false economy.”

“People need to take everything into account; like if they are refurbishing their house they put in a power shower and in the kitchen people just turn the oven on, I don’t think they relate it to how much energy they use.”

“Why do we all hide our meters away in a cupboard under the stairs or outside? It should be where we can see it, so we know what we’re using.”

Switching:

“I think it would be it would be a lot easier and more attractive to change if people were able to talk to human beings because it’s been very much automated on a cost first basis by the

Page 268 of 298 big suppliers putting customers and their desires to engage with human beings a very poor second.”

“Once. It’s hopeless.”

“It is almost a day to day job to work it out (how much energy you are using and how to save money). In which case, I’ve lost more money working it out when I could have been working than what I’ve saved.”

“Can you go through that bother of changing every year?”

“We’ve not changed. 1) because you hear the horror stories about people change and then there’s lots of problems and 2) because it’s hard to understand which is the best one to go to.” “I think it should be like going to the petrol station – a litre of diesel is £1.39, it should be that, not it’s so much for a unit and if you use 10 it’s more then there’s the service charge. It should be a standard charge per unit. So you can really compare across the suppliers.”

“The power to switch, isn’t that hugely over-rated? Do people really understand those decisions? People’s inertia, attitude towards risk, you might make a deal that looks good on paper but won’t be over the long term, these are embedded in wanting to stay loyal to a supplier, people have grown up with monopoly suppliers and all that’s associated with that.”

“Perhaps it could be considered that the companies could have a maximum number of tariffs available at any one time, or over a year period even.”

“Wouldn’t it be nice for all of us if we didn’t have to think about all these complications in a tariff and it simply cost you this much and this much and there’s half a dozen things to choose from.”

“I’ve never switched because I once switched telephone company and I was worse off and I thought I might as well stay with who you’ve got.”

“I find it tedious and difficult to think about swapping energy suppliers.”

“I’d been with Scottish and Southern and it was coming to the end of the contract period, six months before the end of the contract and they sent me a letter saying that it was going to be the end to the contract and after that finished I would be going back on to a normal tariff ... I didn’t think much about it, but I thought if that’s the case, then I better go to the rest of the market and see what comes up. So I went to a comparison site to see what the tariffs were. They automatically come back and say “I understand that you are thinking about changing supplier” and I said “Yes, I’m coming to the end of my contract and I’m looking to get a new supplier because Scottish and Southern did not say they are going to continue with me on a discounted tariff, they are going to charge me almost double what I was on. So I took their prices and EON came back and said they could do it at a price that wasn’t substantially different from the contract I was already on … When S&S heard, they came back to me and gave me an offer that was better than the one offered by E.ON – but why

Page 269267 of 298 didn’t they come and offer me that at the start? I gave them a bit of stick, I said why didn’t you come to me from the start then I wouldn’t have had to waste all this time looking for a new supplier. Ultimately, I am still with Scottish and Southern, but it took a lot of time and energy to get there. But I had to do something because there was just a window of time for me to do it. If I hadn’t done it in time I would have been forced into a substantially more expensive tariff.”

“This whole thing with energy costs, is it real? Is it perceived? Is it falsification by the Government, by the energy suppliers?”

“There is just a lack of transparency through the whole system…. You’ve got to understand it more so you can make choices.”

“Why should there be different tariffs?”

“Why should one supplier have twenty different tariffs?”

“Whenever we’ve tried to switch anything it’s always such a problem. The thought of turning up and reading the meter four times and not knowing are just too horrendous to consider and then the bills going wrong for two years. That’s why we haven’t done it.”

“My daughter in law called on her mother who was dying and had been ill for a long time and the daughter lived some distance away. She was going through her bills and she found that she had switched four times to four different companies and was paying no bills, because she didn’t know what was going on.”

“I started with British Gas for years and years and years and in 2001 they told me my bills were going up from … 0.98p to 1.65p per KwH so I switched to Atlantic and got 0.8p. Not only did I cut that, I saved. I stayed with Atlantic for two years, the service was diabolical, then their prices went up when they were bought by SSE, and I switched from them to another for about two years then their prices went up and I switched to Eon and I’ve been with Eon ever since. I’ve never had any trouble changing. Each time it was a very successful switch.”

“I’m wondering whether … is it like insurance where you have to keep changing, otherwise you are one of the 50-60% who never change and are subsidising the new customers.”

“Our experience, and we’ve done one change recently, was horrendous. With the failure of the suppliers to read the meters properly and failing to take our readings. We didn’t realise that we had to read the meter on the day … the gas was fine but the electricity, they insisted on using an estimated reading.”

“What I’d love to buy is if somebody guaranteed to be no more than 10% more expensive than anybody else at any one time ever, I’d for that. Rather than jumping around all over the place.”

“There should be a shift in obligation from the consumer to the supplier, not only to give you the best deal but also to read the meters properly … I used to have involvement with the sports pavilion in the village, it’s got three tariffs on that and whenever they read the meter, they took a random mixture of which meter reading with which tariff. Every time I rang up they said ‘Would I go round the pavilion on different occasions, once a day for the whole

Page 268270 of 298 week, read the meters and then read them back to them so they could work out which tariff was associated with which reading and I got so furious because I was spending my time doing their job for them. So I think Ofgem should put the obligation back, from the consumer, back to the energy companies to read their meters properly.”

“Presumably there are statistics about what percentage of people do switch energy companies, because I’m one of the lazy people who don’t put time and effort into checking things out, because I’ve got other things to do. Maybe I should do, but I don’t. How many people do?”

“Inertia and the complexity.”

“It happens with everything, doesn’t it? As soon as any company has got you on a regular contract it creeps up. Then you ring up saying you’ll leave and they’ll say they don’t want you to leave and they’ll knock 10-15% off.”

“I can’t understand, why is it more expensive for those first units and then it becomes cheaper? Because that is encouraging me to get better value I need to use more electricity because otherwise if I am trying to conserve it, I’m paying more money.”

Nationalising the energy companies

“The question is, why would a foreign company want to own an energy company in this country? For one reason: to make money.”

“We’re absolutely bonkers if we allow any Russians to own any of our companies full stop, let alone any of our utilities. Absolutely crazy ... They’ll do exactly what they did to Belarus; turn the tap off.”

“A simple solution to this problem would be to nationalise power… the whole process of essential services like gas, electricity, water in the hands of people who suffer from a serious case of corporate greed are going to do nothing but cause the cost of energy, water and gas to go up.”

Activity 4: how much do different energy efficiency measures save?

“If you are trying to save electricity, the most efficient thing you can do is change your fridge.”

“We went for this [loft insulation] and it was great. The men were in and out and done in two hours. Brilliant service, I couldn’t fault it. The house was considerably warmer … However, the energy cost went up, per unit, so where was our saving?”

“Was that through the home insulation scheme… We worked with the energy savings trust when they were doing work on this and they would come along and do nice, easy houses like yours, but there were many people round here who had slight complications, and they’d say “oh no, sorry, there’s not enough space” or “I’m not going to do your house at all” and they were really picky about it … it was ridiculous.”

Page 271269 of 298 “Everybody needs to make use of the Green Deal – it seems a great idea but it’s how it’s actually implemented in the 26,000,000 homes in the UK.”

“Nobody wants to live in a hermetically sealed house, so although in theory it [double glazing] might save a lot of heat, people open the windows more.”

“When we were changing our last washing machine, I phoned the washing machine manufacturer who happened to be Bosch, and they said if I always run it at 30 degrees I will shorten the life of the washing machine. He said now and again I must have a hot wash.”

“I don’t know about anybody else, but I have never taken any notice (of the EPC reports) in the slightest and yet an awful lot of time and thought being put into it but it doesn’t seem to influence whether people buy houses or not. But it should do, and I don’t know why.”

“The tumble dryer for instance, I would dispute that.”

“It’s interesting about switching off at the sockets because … we like to think that we don’t have things on standby, but the number of gadgets now that have a built in clock, so you’ve got your microwave, it’s always got a timer on it, your cooker, we even bought some mirrors for the bathroom and they could have a clock on them. It’s amazing how many things have something that is constantly going.”

“Insulation is the key.”

“This is what our nice, clever MPs, most of whom have got degrees in arts subjects, don’t understand, is that if you build a house with all these things, heat pumps, cavity wall insulation, it’s a good idea, but if you start retrofitting houses which already exist it’s going to be expensive and probably won’t work and will be disastrous.”

“My biggest concern with these things is that there is no such a thing as an average household.”

Other points:

Solar panels:

“I did look at solar PV but it wasn’t affordable and it wasn’t going to pay off neither was hot water [solar water heater] when I realised how little I spent on water. For me, it would have just been a vanity project. It doesn’t pay.”

“I looked into the technologies of all these solar panels then we went through all the costings of it, 43p as it was then, because I could afford the £10,000 that they wanted for this and then the thing that actually stopped me, and I’m not trying to be too moralistic about it, was thinking back to the 1970s in particular when we had high inflation and elderly relatives could not pay their electricity bills. I thought that that guys like me, relatively well off, was actually being subsidized by the Government so that poor people who live in flats, don’t have the £10,000 to spare or they move a lot or they live in caravans can’t get the subsidies, their electricity bills are higher.”

Page 270272 of 298 “I put a solar water heater on my house 30 years ago, it’s long since paid off… To my mind, solar PV is the best investment going ever, anywhere, because it’s guaranteed by the Government for 25 years. We’ve never had such a gilt-edged investment in my lifetime.”

“I know people who have done that because putting money in banks is not worth it anymore, so they do things like that because they know they’re going to get £900 from the Government in subsidies.”

“The net return is 8.5%. You tell me any bank account that will give you 8.5% interest.”

“The feed-in tariffs on PV are fine, they’re going to pay back in 18 years, but is the lifespan of the panels more than 18 years because at the end of the 18 year period you’re going to have to replace it, so there’s no sense in it.”

“Nobody actually says in ten years’ time you’re going to have to replace the panels, so Joe Public is actually being hoodwinked by the Government because this is not a realistic approach to this energy crisis that we are facing.”

Page 271273 of 298 Group 3: Sources of information

Activity 1: Which statement is true and which is false:

“We know that we are being charged for renewable energy on our power bill.”#

Ofgem

“If you see something come out from Ofgem, you expect it to be 100% true.”

“Ofgem are being lied to by the energy suppliers. Or misled…. The profits that they are receiving are not being accurately portrayed.”

“There should be financial analysis of the energy suppliers’ income, based on the revenues they receive and the outgoings they have.”

“It’s from Ofgem, it must be true…. That’s the same as trust me I’m a doctor.”

“That’s based on information given to them by the industry?... How accurate is that?”

Chris Huhne

“He’s [Chris Huhne] a politician, and we don’t trust them.”

“From my perspective, no Government policies are actually doing anything to control the energy industry, particularly in the wastage.”

“Given that we are facing a big energy gap just about then [in 2020] and we don’t know where that energy is coming from just yet and we’ve got a little while to go that can’t possibly be something that can be promised and maintained.”

“I think it’s false. I don’t see anything that is going to give that result. The phrase Government policy is a very broad church, there are so many Government policies.”

“You have to be an expert on it to know what it’s all about, don’t you?”

“I personally don’t know because every time there are facts and figures for inflation they … can massage the figures so that it looks like they are saving you £94 when they’re actually not. I just wouldn’t know.”

Committee on Climate Change

“Yes, because they [Committee on Climate Change] have all the information. You expect them to have all the information.”

“If they [Committee on Climate Change] get it wrong, we’re all in trouble, aren’t we?”

“My reaction was: what environmental policies?”

Energy Companies

“I can understand him saying it.”

Page 274272 of 298 “The thing you’ve got to look at is what are you talking about? Are you talking about ‘our profit margin is less than 5%’ or after all costs, tax etc. it’s 5%. It’s a big difference. Very few companies work on a 5% profit margin.”

“He may well be able to justify the 5%, but I bet we’d take issue with a number of the elements he included under costs.”

“He [Phil Bentley] can say 5% until the cows come home, as long as their profits continue to go up, I’m not going to believe a word he says.”

“What actually do you mean by 5% profit? What have they taken out, what have they taken into account? It [that statement] means nothing really.”

“An energy executive saying that’s what it is, he’ll be able to justify it. If you were to ask him to go into detail but the reality is, I’ve worked with the energy industry for the last 30 years, that you can say anything to the public but it is quite easy to hide where your real profits may be made.”

Media

“I don’t think the public, at this stage, are terribly interested in the environmental problems, they’re interested in the financial problems.”

“By popular myth and what you read in the media, I would err that there is some truth in that statement and I would say popular myth because I don’t know the facts and figures.”

“I think we’d emphasis the fact that it is likely to be false … Or just replace the Guardian with any newspaper.”

“I think that’s true.”

Other

“We hear too many different messages.”

“I think the real evidence is in your bills – you can see that is true. All they’re doing is drawing your attention to it.”

“There are no impartial sources. They all have their own agenda.”

“We hear too many different messages.”

And that’s half the problem; people don’t know because you’re hearing so many different things, so you think “you know what, I’ll carry on with what I’m doing because I really don’t know.”

Activity 2: Discussion on sources of information:

If your bill is reasonable:

“I actually went to my supplier and said what the internet was offering and that I was going to move my dual fuel supply and they said that if you stay with us, we’ll give you £100 and if

Page 275273 of 298 you leave us, we will charge you a cancellation fee… but you have to have the confidence to do that and lots of people don’t.”

“One of the annoying things about these bills is that they come through and they say “We owe you £381 and we will give you … per month” and I go to them and I say well why put it up in the first place? I was paying £60 and that was covering my bill, why have you put it up to £75?”

“I’m with Scottish Power and if my credit goes above £100 and remains there, they’d actually give me 3% back if they hold more money, which they shouldn’t do, so it’s not much but it’s the equivalent of a savings account.”

“It really is difficult to know what you are being charged.”

“I would ask my neighbours, someone with a similar household.”

“I look at the Energy Savings Trust and SCARF [who manage the EST’s Energy Saving Scotland advice centre North East], because they are independent … but I don’t think people know enough about that, even though they’ve been there for many years.”

“Money Saving Expert, when I looked at it I just plugged in via their one [comparison tool] and went with their recommendation, but again you have an assumption that they haven’t got a deal to funnel you towards somebody.”

“Talking to relatives, friends etc. People love to brag if they’ve got a good deal!”

“As I am only in a student house for one year, the hassle just isn’t worth it.”

“Well you might try the comparison websites. They are, quite rightly, concerned with making these comparisons easier. They are actually quite difficult to interpret but certainly I think that’s where I’d look first of all.”

“Our companies invested about £5 million in a computer system to compare prices for companies and … to give you an idea of how stupid it is, there’s one price that’s charged, a tariff, that’s called a triad charge and the consumption is measured for three one hourly periods during the year. It’s then averaged and the charge is made over the whole year based upon that sum. Who decided to put that in? For some energies there’s about 30 different charges that make up the cost of what arrives at your meter so for the consumer, like us, it’s virtually impossible to understand what you will be charged in terms of your energy.”

“It shouldn’t be necessary, should it? Everybody should be informed of what the situation is. You shouldn’t have to chase all over the place. You want clear and clean information. I think the only way correct way is for the Government to give some actual details so that we know what the situation is.”

Green measures

“No idea.”

“I’d look at the website of my energy provider.”

Page 274276 of 298 “I would like to know how much renewable energy they’re actually using. There’s a company called Good Energy that commits itself to 100% renewable, so if the bigger companies could say “at the moment it’s 10% but each year we’ll pledge to make it more”, that would be of interest.”

“Why would we want to know?”

“That’s another issue as well; we need to know what each company make of renewables.”

If you wanted advice on saving money:

“The Energy Trust.”

“There’s a lot of people who don’t actually have computers and who are not computer literate or familiar with searching online for the best deal, so they’re missing out.”

“How can we start to have a debate when we don’t know the facts? Every bit of information we get is loaded, so we don’t believe it.”

“Basically, you’ve got, as I see it, the Ogfems and the Ofwats who basically don’t have any real powers at all and they’re not implementing policies that are for the benefit of the public. They’re very much working, hand in glove, with the utilities, and that is the biggest problem. The utilities pull the wool over their eyes the whole time and they’re just getting away with it … it’s not something that is clear to the general public. And the comparison websites, they help, they give you an indication of where you might be able to get a better deal, but they’re not really that thorough.”

“I’m with E.ON and I’ve always found them pretty fair and straightforward. It just shows that the others could do the same. There isn’t any big obstacle. Much like going to the butcher to buy some meat, you know, it’s the same question. There shouldn’t be a complexity about it. If we factor in this three month warning of any change on your tariff as a standard practice … then I think the thing’s done and dusted really. If you don’t like it you just ring someone else up and if they’re working on the same ethical basis, I think the problem would go away.”

Activity: Discussion and worksheet on who consumers trust:

“If you want a view on power generation you go to the companies, they are the experts. You might not like the answers, but they will be the most expert. If you want a view on their pricing policy, then you should probably go to Ofgem or the comparison sites. It depends what you want to ask.”

“The industry has no standards, or very few standards, for data interchange, which means that all the suppliers basically do their own thing. There is one centralized database … which contains the information about all the meters, electricity and gas meters, in the country. The data quality in that is appalling and typically with our contracts, when we re-contract a company which may have 100-1000 meters to a different supplier, the suppliers will spend roughly about £15-20,000 just correcting the data from the central database before they can actually bill the staff. There’s no standards for billing … If Ofgem did something to establish data interchange standards in the industry and better quality of data, it would probably cut costs 1-4%.”

Page 277 of 298 “Perhaps it would be better for us to have two bodies providing accurate and correct information about the generation process, where we’re getting our energy from and how we’re going to deal with energy in the future … that was devoid of politics and devoid of corporate interest. Then the other organisation would be focused solely on information about how much energy costs for the consumer from the different suppliers.”

Which? And Energy Savings Trust:

“I think they always make it clear.”

“Which? are better because they are independent.”

“I would certainly trust some of them to be independent, which is the main thing. I’m not going to say they’re not wrong; I mean you can run a study and get it wrong, but if you’re running studies from a completely impartial perspective, that’s different.”

OFGEM:

Compare the market:

“I find them a bit difficult to believe. That is actually somebody who is advertising their actual tariff. There’s nothing to debate. On Compare the Market, that’s your tariff.”

“I suppose I’m doing it the long way round, because I’m going to the energy companies and I have to spend all day going to each one individually.”

“I mean the thing is, if you were really independent, there are about five of these comparison sites, aren’t there? You should be able to go to each one and be given the same piece of advice, and you don’t.”

Other points:

Older people/cold calling

“Older people are abused by cold-calling from the energy companies and they can’t cope with switching and all that sort of thing… everybody should benefit from cheaper prices not just people who are on the internet as generally older people aren’t”

“I am pestered from morning ‘til night from cold callers on the telephone.”

“British Gas are offering free boilers to older people, but then the service charge after they have put them in is enormous … They give with one hand and take away with the other.”

“The only way of preventing this is to make it so that you can’t switch via a phone call… they purposefully mislead to make you think they are a big energy company and you don’t [know who?] you are talking to or who you are dealing with.”

Page 278276 of 298 Energy shortages/security:

“There is a very specific thing that the Committee could address itself to, which is the large combustion plant directive, which is due to operate in Britain and the rest of Europe in 2015. If we don’t seek a derogation from that we will be closing 40% of our coal fire stations by 2015 and that will put the lights out, there’s no question of that. It’s not an if or a maybe; take out 15 gigawatts of our capacity and that will close us down in certain parts. So we’re hoping that sense will prevail and somebody will say ‘no, I don’t think we’re going to go with this directive’ ... I’m about Monday morning stuff; what are we going to do Monday morning. Monday morning is 1st January 2015 and if we don’t do something about that derogation we are going to be closing something like 10 power stations and that is true.”

“The other problem we’ve got is that most of the energy companies are not British. That, to me, is one of the real things that screwed up with the privatisation of the energy market.”

“It’s not just a source of information, is it? When you talk about energy security and you start at the beginning, with the UK, then we need someone with a UK interest and they’re not going to have the UK interest at heart.”

“I do believe there has to be greater regulatory control.”

Green energy

“It’s clear – it’s not just a case of being green. We need more energy in the UK and more electricity in particular and we have a situation where we import the majority of our fossil fuels which are becoming scarcer and more expensive. So from a strategy angle there has to be higher number of renewables.”

“The main reason why we are all here is because the question we have got to answer in an exam in two weeks is what is the energy strategy for the UK in 2050 and the answer is nobody knows and nobody knows what should happen in the in between time, but we do know that we’ve got to move away from fossil fuels not just for green reasons but for energy security to ensure that we have energy in 30, 40 years’ time.”

“It’s just an illusion; there isn’t such a thing as clean coal. It’s never going to be that clean. It’ll be 10% fewer carbon emissions but it’s never going to be the clean technology that we want it to be. Where Britain has fallen behind in comparison to other countries is that other countries invested in nuclear a long time ago and even though it has large de-commissioning costs, at least you can mitigate the whole issue with a diverse portfolio of energy sources. And again, other countries are leaps and bounds ahead of us and we’re now getting to this point where fossil fuels are running out and we don’t have anything else to move to. So whatever happens, the Government has to lead this.”

“I suppose the other thing to look at is what approach do we take in the short term because we all work on this assumption that energy use is going to rocket up; do you take the efforts in the short term in reducing energy consumption which would negate the need for this increase in demand up to 2050. This is where we, as a country, have got to work out what are we doing and what’s best short, mid and long term because what could be good in the short term isn’t necessarily a good use of our money now looking mid and long term.”

Page 279 of 298 “You asked the question about green energy; the bottom line is we want cheaper energy. What’s all this about green energy? There’s a clue in our current energy system: hydroelectric …so what’s all this nonsense about green energy?”

The University of Aberdeen … we pay something like £250k in carbon tax. We know it’s going to go up, we know it’s going to continue, so we as an organisation are going to try and reduce our energy bill. Well I wouldn’t be worried about where my energy was coming from, whether it’s green or not, because you make sure the generator gets hit by the carbon tax, they will make sure you are trying to make it green. So I think we shouldn’t worry as consumers about where the energy is coming from, that’s the generators responsibility. But you hit them hard and you don’t let them get away with being able to offset or whatever. You say if you are getting your electricity from coal and it’s producing lots of carbon, you have to pay that tax. I don’t worry too much about what proportion is green or whatever.”

“Most of these companies will have a green tariff, so those people that want to have a lower carbon output go on that tariff, which is often, usually, always, more than the normal tariff. I wouldn’t do that because they [energy companies] have their obligation to have certain cutting carbon initiatives in their mix already, so why are you paying extra money to them. They say that they will put it towards more renewable energy, but I am highly sceptical of that, they’re just trying to make more money out of you because the Government is making them have low carbon generation. I think that’s another avenue for the energy companies to be getting more money out of people who think they’re doing a good thing by having low carbon energy.”

“Now there’s massive drives about green energy; Alex Salmond is sailing into the sunset on the back of his wind turbines.”

“But climate change is a big aspect of that … I honestly believe not too many people take particular note of climate change because it’s a pretty nasty subject, to be fair. It means that a whole lot of lifestyles are going to be quite a lot different if we don’t do something, if that data is correct and the temperatures are rising. I believe that the fundamental reason for that is most of the people making decisions know that they won’t be affected; they’ll be dead before it happens. But it’s changing now and if the current estimates of when these temperature estimates are going to kick in, I might be dead but my kids won’t be and their kids definitely won’t be, so we do need to start taking it seriously and it’s no good hiding behind ‘oh, well the numbers are unsubstantiated’, so they might be, but we should be doing a hell of a lot more to try and work out what is substantiated because if climate change is going the way, even half as badly as the worst estimates suggest, then we’ve got a big problem and it’s going to happen in the next 50 years.”

“I agree with the thing on Climate Change, is it a serious thing that we need to look at, but the thing that really concerns me, I’ve done a carbon audit of our own usage and we’re a fairly average house in the village. My wife works in Colchester, I work in Ipswich, so it’s not far away, and we generate, just our own use that’s electricity, gas and car fuel, 15 tons of carbon a year, roughly split three ways, electric, gas and the car. The thing that really upsets me is that you see things like wind turbines, which, yes, they’re helping but they’re only addressing a third of the problem. You go around and you see millions of vehicles on the road; what’s Government policy doing to help to reduce that? Because every mile I don’t drive is less carbon in the atmosphere, but to build a wind turbine you’ve got to mine steel

Page 278280 of 298 and copper and use concrete; the concrete industry contributes 5% of the carbon in the atmosphere.”

“That’s the problem, we’re rushing ahead with things like wind turbines saying we’ve got to put them up all over the place, without actually knowing what the impact is. There are some serious health impacts with the noise of these apparently.”

“In the short term, efficiency is a good road to go down, but if the Government is going to consider putting any ideas about efficiency for people to take up… they need to be mindful of the less energy people use the more they are going to be charged for it in order for the suppliers to be able to make their profits.”

Nuclear Power:

“Only this week at Hinkley Point, which is one of those that EDF is going ahead with, there’s an announcement that the earth works are going to be delayed for another 20 months for whatever reason. So I think that, obviously here in Suffolk, given the people that are based in the area, nuclear is a very important factor, especially as a prospective employer, so it is very concerning.”

“I think the other thing the Government could do is help dispel many of the myths around nuclear industry. I’ve seen some figures and I think the number of deaths due to nuclear accidents is less than 100, whereas you look at chemical accidents, 1000s of people have chemical accidents, but people have got this perception that nuclear is dangerous and it isn’t.”

“The problem with nuclear is disposable waste. That’s the biggest problem.”

“The biggest difference is that if you have a coal-fired power station, you send it up the chimney and you cause global warming … with nuclear, you keep it in one place.”

“The problem is, the Government can do things … one of the things I think the Government did very well is get lead out of petrol. They didn’t do it by giving information, they did it by reducing tax on unleaded fuel so people naturally moved away from it. The Government’s got some very subtle means of controlling public opinion, without going head at it and saying ‘you will now believe this’.”

“The thing that we really ought to concentrate on is that we are approaching a point where we are overwhelmingly net importers of energy … this will be the first time in the whole of our history that this country will be dependent, more for energy brought from outside its shores than that inside. For me that points to building nuclear power stations as quickly as we can.”

“I think that the Government is wrestling with an enormous problem. Mr Cameron has just said his three principles for protecting the country … the top of which was secure energy supply. Now this in itself is a big shift in policy …”

“One that caused me a bit of a shock was that Eon was not going to build a nuclear power station.”

Page 281279 of 298 “Given the Government’s strategy, the fact that you can have two of the principal suppliers both saying they’re not going ahead with nuclear power, which leaves you with EDF, and we’re all familiar with some of the problems the French have got economically … It does make you question whether the nuclear policy, from the vision that is being put forward by Government, is realistic.”

“I would guess that many people feel that the over-riding one [priority] is to secure our energy system and resources at a price that is affordable to them and to industry.”

Shale Gas:

“It has to be stacked against the gain. There’s a risk, clearly, but the preliminary is guess work. I think there’s another point, we were talking about what information do we have, but most people don’t have any information and that includes the people operating the system; they’re exploring. The preliminary thing is 30 trillion cubic metres of gas which is equivalent to the North Sea for 15 years. That would be a fantastic bonus to Britain, it would transform our energy prospects, if it’s true, and we don’t know.”

“I think there are serious questions about the effects of fracking in relatively small environments such as ourselves. It’s incredibly successful in North America, but most of the drilling is done in wilderness areas or areas that are very lightly inhabited and the impact on the environment is more difficult to determine. Whereas going to somewhere like Lancashire and drilling onshore or offshore has a closer impact on a larger population and I think that’s one of the big concerns about it.”

“I don’t really know much about it. You hear about it because it was causing so-called earthquakes and tremors up in Lancashire, and that’s all you hear about it. You don’t hear the benefits or what it’s all about.”

August 2012

Page 282280 of 298 Populus Polling Summary Brake Pads Omnibus Survey Energy and Climate Change Committee 17 August 2012

Populus interviewed a random sample of 2,038 GB Summary of results adults on its mid-week 1 Between 2004 and 2010, the average household dual fuel bill online omnibus between went up by 75%, or £455. Which of the following do you think nd th 22 and 24 August. contributed most to this rise? Results have been weighted to be representative of all Half of people (50%) believe that energy company profits GB adults. Populus is a contributed most to the 75% rise in the average household dual founder member of the fuel bill between 2004 and 2010. People in Yorkshire (58%), the British Polling Council and North West (57%) and the East Midlands (56%) are particularly abides by its rules. For likely to attribute the rise in the dual fuel bill to energy company further information please profits. visit www.populus.co.uk. Almost a quarter (23%) believe that the price of fossil fuels contributed most to the rise in the average dual fuel bill. The rest of people were largely divided about what contributed most to the rise – 7% selecting VAT, 5% the cost of getting energy to homes and 5% investment in renewable energy.

Page 283281 of 298 1.1 Summary of results table

Energy company profits 50%

Fossil fuel prices 23%

VAT 7%

The cost of getting energy to homes, such as the cost of installing and 5% maintaining pylons, gas pipes, overhead cables and other infrastructure

Investment in renewable energy 5%

The amount of energy households use 3%

The cost of building new power stations 2%

The cost of schemes to improve energy efficiency in homes and 2% communities

The cost of schemes to support people living in fuel poverty 1%

Other 3%

.

Page 282284 of 298 2 What effect, if any, do you think the following actions would have on energy bills in the average home? The vast majority of people believe that many of the actions listed will reduce energy bills in the average home; 89% believe reducing the amount of heating used in the home will reduce energy bills, 88% insulating the loft, 88% turning off lights when not in use, 88% turning off electrical appliances when not in use, 88% installing double glazing and 87% insulating the walls. Reducing the amount of heating used in the home (43%) and insulating the loft (41%) are two actions which people believe are most likely to ‘reduce bills considerably’. For the majority of actions, home owners are more likely than renters to believe that the actions will reduce energy bills. There is also a similar – and undoubtedly overlapping – difference between older people, who are more likely to believe that the actions will reduce energy bills, and younger people, who are less likely to believe this. For example, 90% of home owners believe that installing double glazing will reduce energy bills – compared to 83% of renters – and 94% of those aged 45 and over think the same – compared to 82% of 18 to 44s.

Page 285283 of 298 2.1 Summary of results table

SUM: Increase bills No effect SUM: Reduce bills Don’t know Switching to another 5% 29% 53% 12% energy company Staying with the same energy company but 7% 26% 52% 15% switching to another tariff Insulating the loft 4% 5% 88% 3% Insulating the walls 4% 5% 87% 3% Reducing the amount of heating used in the 4% 4% 89% 2% home Reducing the amount of hot water used in the 5% 7% 85% 3% home Turning off lights when 4% 5% 88% 2% not in use Turning off electrical appliances when not in 4% 6% 88% 2% use Installing double-glazing 4% 5% 88% 3%

Page 284286 of 298 3 If you wanted to reduce your energy bill, which of the following actions, if any, would you be likely to take? (If this action had already been taken before you lived in your home, or if this action cannot be taken in your home, please tick N/A) The vast majority of people currently turn off lights (84%) and electrical appliances (76%) when not in use to reduce their energy bill. Over half have already installed double-glazing (66%), reduced the amount of heating (63%) and hot water (57%) used in the home, or insulated the loft (58%) to reduce their energy bill. Only a quarter have already switched to another energy company (25%) or stayed with the same energy company but switched to another tariff (24%), although around two-in-five expect to do this or are likely to consider doing each action (43% and 42% respectively) . Similarly to the previous question, home owners and older people are more likely to have already done these actions or to consider doing them. Home owners are more likely than renters to have already switched to another energy company (28% vs. 21%) or switched tariff (26% vs. 21%). Those aged 45 or over are more likely than 18 to 44s to currently be turning off lights (90% vs. 78%) and electrical appliances (82% vs. 70%) when they are not in use. Women are more likely than men to already be reducing the amount of heating (90% vs. 78%) or hot water (82% vs. 70%) used in the home.

Page 285287 of 298 3.1 Summary of results table

Already Expect to do Likely to Unlikely to Definitely would N/A done/doing this within the consider doing consider this not do this this next year this Switching to another energy 25% 10% 33% 19% 5% 8% company Staying with the same energy company but 24% 7% 35% 19% 4% 10% switching to another tariff Insulating the loft 58% 4% 8% 4% 1% 24% Getting cavity wall 39% 3% 10% 10% 4% 34% insulation Getting solid wall 20% 3% 12% 17% 6% 42% insulation Reducing the amount of heating 63% 6% 16% 10% 2% 4% used in the home Reducing the amount of hot 57% 6% 16% 15% 2% 4% water used in the home Turning off lights 84% 3% 8% 2% 0% 4% when not in use Turning off electrical 76% 5% 11% 3% 0% 4% appliances when not in use Installing double- 66% 2% 7% 4% 1% 20% glazing

Page 286288 of 298 Written evidence submitted by First Utility (CE 33)

Introduction

1. First Utility is the largest independent electricity and gas supply company in the UK, serving both domestic and non-domestic customers. We are committed to actively engaging with our customers by providing them with access to data and tools that empower them to take control of their energy usage. This offering has been attractive to consumers as this year has been another one of growth: to date this year we have increased our customer base from 50,000 to over 100,000 electricity supply points, with over 90,000 of those being dual fuel domestic customers.

2. First Utility was the first company to undertake a national rollout of smart meters. To date approximately 25% of our customers have a smart meter installed. While the delay to the specification and availability of SMETS-compliant smart meters has slowed our rollout, we intend to accelerate the rate of installation again in the near future when industry compliant meters become available.

3. Building on our smart approach, we have this year, in partnership with opower, launched the my:energy service to both our smart and non-smart metered customers. This service provides customers a detailed view of their electricity and gas usage. Most importantly, it enables a customer to rank their usage relative to nearby customers of a similar profile. It also provides a range of energy-saving advice, profiled to the particular consumption pattern.

4. We believe that our active approach to consumer engagement with energy markets is something unique in the market. However, our ability to continue to grow and innovate in terms of product, service and consumer empowerment is dependent upon energy market reforms opening up retail competition rather than exacerbating barriers to competition.

5. Competition in the UK energy market should be examined in two key areas: (i) UK wholesale energy markets and (ii) UK retail energy markets. We believe there are strong linkages between the structural issues in the illiquid wholesale market and the lack of energy retail competition.

A1: The UK Electricity Wholesale Market is Illiquid

6. The UK electricity wholesale market is extremely illiquid. Ofgem estimates that the current churn rate in the wholesale electricity market is ~300%. This stands in sharp

Page 289287 of 298 contrast to Ofgem’s idea of liquid markets, defined as having a churn rate of above 700%.

7. The main reason for the low liquidity is the vertically integrated structure of the ’Big Six’ energy companies. 70-80% of UK generating capacity and 90% of retail customers are in the hands of the six vertically integrated players. In the domestic retail market, the incumbents’ market share rises to 99%. When companies align their upstream of market (generation) and downstream of market (supply) physical positions in this way, they no longer need to sell or source large proportions of their power in the wholesale energy market. Instead they can internally transfer the bulk of their physical position, avoiding the market for all but residual trading around the edges of the combined portfolio. This reduces their exposure to wholesale volatility but more importantly to the punitive cashout mechanism, which creates a big economic advantage over independent suppliers who cannot leverage upstream generation positions in this way. By avoiding the market, such integrated players make wholesale trading decisions based more on ‘wanting’ rather than ‘needing’ to trade, so that market prices are not driven as strongly by fundamental supply and demand considerations. The kind of trading activity taking place in the incumbents has more in common with that of market intermediaries than that of physical asset owners. Large amounts of the physical market being in the hands of integrated players results in an illiquid, non-robust wholesale market price signal that can be gameable. This undermines certainty of access to product and robustness of prices for new entrants either upstream or downstream, creating a strong barrier to entry and growth.

8. First Utility notes that the structure of the incumbents is a natural result of the punitive dual priced cashout mechanism, which creates the economic incentives associated with pairing up generation and retail businesses.

9. In order to generate vigorous competition and robust liquid wholesale electricity markets, Ofgem needs to make an intervention that drives a ‘need’ to trade in the incumbents. However, the current Mandatory Auction proposals will fall far short of the more than doubling of wholesale trading activity that is required, and are in fact likely to fragment rather than increase liquidity. We note that liquidity and cashout design are strongly related and believe that Ofgem would see a benefit in combining the workstreams in these areas.

A2: Drivers of Poor Competition in the Domestic Retail Market

First Utility believes that vigorous competition in the domestic electricity retail market will naturally result if the hub - the wholesale market - is deeply liquid and vigorously competitive. Lack of competition in retail markets is a consequence of the structure of, and illiquidity in,

Page 290288 of 298 the wholesale electricity market. Below we outline the kinds of barriers to entry that independent energy retails such as First Utility face which are indicative of a lack of competition in the retail market. 10. If incumbent energy retailers were collecting an unreasonably high profit from their customers or providing a poor service in a competitive retail environment, one would expect new retail entrants to emerge and undercut the incumbents on price and/or deliver more innovative, transparent, and empowering services to end consumers and in doing so take significant market share away from incumbents. The domestic energy retail market is approximately a £30 billion per year market, and yet to date new entrant domestic retailers have been able to take less than 1% of the market share. One of the following two possible reasons could account for this:

• Vigorous retail competition might already exist, meaning that the margin opportunities in the UK energy retail markets are unattractive to new entrants. • Very poor retail competition exists, but the structure of the UK energy wholesale market creates insurmountable barriers to entry and growth at the retail level.

11. First Utility believes that the latter is closest to the truth. As an example, look at the difference between the standard tariffs offered by incumbents and their best online deals. The price difference is often up to £200 per year, or 20% of the annual spend of an average domestic consumer. We believe that a £200 per year margin should be sufficient incentive for new entrants to compete for market share in a competitive market. However, in order to win customers, a new entrant supplier must win business at the competitive fringe of the market and to do so, they must price in line with the online tariff offerings of incumbents. There is clearly a much lower margin opportunity at this competitive fringe which is often £200 lower priced than the standard tariffs, making it extremely hard to create an economically viable new entrant energy retail business. We believe that the difference between standard tariffs and online tariff is an example of sticky customers on high margin products cross-subsidising acquisition tariffs, making it hard for new entrants to compete for market share.

12. First Utility believes that such a difference is not cost-reflective and is in fact an example of predatory pricing at the competitive fringes of the market in order to lockout retail competition. Other examples of predatory pricing activities include, but are not limited to: (i) not charging a termination fee for early exit from fixed-price deals and (ii) offering non- cost-reflective retention bonuses to customers who apply to switch away.

13. It is the sticky, less active customers in the retail market, who may include many vulnerable customers, are paying higher costs to subsidise this kind of activity. First Utility believes that existing Standard Licence Conditions on price discrimination could be actively used to manage this issue. We believe that Ofgem should include predatory pricing issues in its Retail Market Review workstream as this is a key barrier to retail competition.

Page 289291 of 298 14. When this is combined with (i) the higher and more uncertain costs of wholesale power for independents and (ii) the increased cost of imbalance when an independent is penalised for not contracting volumes ahead of cashout (despite often not having liquid access to the product required), it is clear the origins of the current lack of competition in UK energy retail markets are obvious.

15. In summary, competition in the UK wholesale and retail electricity markets is extremely poor. The wholesale electricity market is extremely illiquid, as noted by Ofgem and DECC. Ofgem has had a workstream on addressing wholesale electricity market liquidity issues for several years now, but we are concerned by the lack of progress and the continued hope that voluntary measures will solve the problem. Voluntary measures can disappear as quickly as they appear. Vigorous retail competition and vastly increased consumer choice will naturally develop when the structural barriers to entry and drivers to vertical integration (including dual-priced cashout) are removed.

16. In addition First Utility is concerned as regards further barriers to growth that have arisen as a consequence of the Energy Company Obligation (‘ECO’). Under the current draft of the Electricity and Gas (Energy Company Obligation) Order 2012 once a supplier has over 125,000 dual fuel customers (250,000 customer accounts) their obligation is set at twice the level of the obligation for the Big Six. In financial terms this means that a growing supplier would have to pay approximately £100 per dual fuel customer per annum as compared to £50 per annum for the Big Six in respect of the 250,000 customer accounts over the threshold. As a consequence there is no incentive for a domestic supplier to grow beyond the ECO threshold.

B: Ofgem’s Retail Market Review proposals

17. First Utility is supportive of measures to increase clarity of information provided to consumers and increase ease of tariff comparability. However, we are concerned that Ofgem’s current Retail Market Review proposals will increase and not decrease customer confusion on tariff comparability. There is a risk that, by trying to simplify tariff offerings from suppliers, Ofgem could force suppliers to design tariffs that do not charge consumers in a cost or risk-reflective way. The increased risks held by suppliers would ultimately be borne by end consumers via the tariff pricing. There is also a risk that, by setting a common standing charge for standard tariffs only, consumers might accidentally compare unit rates on non-standard tariffs only, leading to accidental switches to more expensive tariffs. We believe the standard metric for comparison that will work in all scenarios is the total annual bill at a customer’s annual level of consumption. We would support measures to increase tariff comparability by prominently displaying this number on all retail bills.

C: Consumer trust in energy companies

Page 292290 of 298 18. First Utility believes that consumers are disengaged and disempowered in the UK energy retail markets and we continue to believe that the key to building trust in energy companies is to create the conditions for vigorous retail competition. In such a situation, one would expect consumers to switch away from companies who have out-dated practices, poor communications, and expensive products, and who do not innovate to the benefit of consumers. They would move to companies that provide fresh, innovative, and competitive products that engage and empower them.

D: The level and quality of information provided by energy companies to their customers

19. First Utility is supportive of measures to increase the amount and quality of information provided by energy companies to their customers. We believe that information is the key to engaging and empowering consumers to make behavioural changes to lower their energy bills. First Utility has been leading the way in this area over recent years. We were the first energy supply company to begin rolling out smart meters to domestic consumers, and have installed approximately 30,000 meters to date. This year we have partnered with US company opower to launch the my:energy service to all our customers. my:energy allows customers to view their consumption data online and compare their usage with that of similar houses in their area to see how well they are performing in terms of energy efficiency. The service offers customers tips and hints to incentivise further energy savings. We believe this will lower consumers’ bills by reducing the volumes of energy they consume. First Utility believes that investing in reducing our customers’ bills and their carbon emissions will enable us to retain our customers and continue to grow.

20. First Utility intends to further develop this service to offer even more powerful data analytics with smart meters, driving both energy and cost savings for consumers. We would like to continue innovating and leading the way in this area, but this will depend on whether the barriers to entry and growth that characterise the energy retail markets are addressed.

E: The role of smart meters in helping consumers to reduce their energy bills

21. First Utility has been leading the way with smart meter rollout, and with providing analytic services to empower consumers to measure and reduce their energy consumption. We believe the smart meter is key to this message and key to increasing consumer engagement in the energy retail market. We expect to continue leading the way in this area once the next generation SMETS-compliant smart meters become available. Further information is also provided in section D.

F: Consumer engagement strategies for helping consumers to increase energy efficiency

Page 291293 of 298 22. First Utility’s innovative my:energy service is free to all of our customers. This service delivers a strong message to customers regarding how their consumption compares with their peers. It offers insight into the ways in which a consumer might not be as efficient with energy as they ought to be, and it allows consumers to measure their performance month-by-month. We believe innovative technology and analytics, combined with consumer engagement, is at the heart of driving energy efficiency improvements in the home. First Utility hopes to lead the way in this arena. However, unlocking retail market barriers to competition will enable us to carry out a larger rollout of this service to our existing and potential customers.

September 2012

Page 292294 of 298 Written evidence submitted by Ecotricity (CE 34)

1) Introduction

1.1 Ecotricity is an independent renewable energy supplier and generator, with over 65,000 customers across the UK. We own and operate 53 windmills and the country’s first large scale sun park. Ecotricity was founded in 1995 and we were the first company in the UK to offer green electricity.

1.2 Besides our green credentials we strongly believe in the importance of customer service that is easily accessible. We offer a unique personalised and accessible customer service and we ensure that our phones are answered promptly by a human being.

1.3 Ecotricity believes in simplicity. We provide just two domestic tariffs, our standard, which is price matched to the incumbent supplier in the region and our 100% green tariff. We keep our bills as simple and easy to understand as possible and receive positive feedback on this. Our prices do not discriminate between new and existing customers and we do not charge an exit fee.

2) Executive Summary

2.1 We agree with Ofgem’s central concern that there is a lack of engagement in the energy market by consumers. We believe that the cause of this is a lack of trust and a perception that the market is complex and switching will simply cause disruption and inconvenience. We believe that the information remedy proposals will improve consumer engagement and our experience is that consumers do not welcome increases in the amount of information they receive. We welcome proposals to improve the simplicity of the evergreen tariff but we are concerned that moving innovation to the fixed tariff market will hinder switching further. We would welcome further customer education from an impartial organisation and we believe that the media could also do more in this regard. We see advantages and disadvantages to funding environmental and social programmes through levies.

3) Barriers to consumers switching energy provider

3.1 We believe that a perception of disruption and complexity involved in the switching process is a key reason for customers not wishing to switch. This is particularly relevant for customers that have previously experienced complications in switching or have never switched before. Many customers wrongly believe that they will need to contact their existing supplier in order to switch and anticipate that this will cause further inconvenience.

3.2 Lack of awareness of the terms of their tariff is another problem. Many customers wrongly assume that they will be penalised by their existing supplier if they switch, despite being on an evergreen contract.

3.3 Another major factor is mistrust in the industry and fear that customers may not be getting the best deal. We believe that the plethora of tariffs available is confusing; adds to the perception of hassle and; may actually create a hindrance to switching.

Page 295293 of 298

4) RMR Proposals : information remedies

4.1 We believe that some of the RMR proposals will encourage consumers to become more engaged, whilst others will actually reduce engagement.

4.2 It is important to note that, as an independent supplier, the vast majority of our customers have chosen to switch to us. They are therefore, by definition more engaged than average. Measures that are necessary to encourage Big Six Customers to engage in the market are not necessary for the customers of independents. Ofgem has taken this into account in its reporting transparency requirements but not in its domestic customer information remedies. It is important that this be considered.

4.3 It is our experience that customers prefer information to be kept to a minimum. We deliberately limit the information we send customers, to only that which is necessary or legally required. Even with this minimal amount of paperwork customers request less.

4.4 The information requirements in the RMR increase the information burden and the standardisation proposals restrict companies’ ability to distinguish themselves through innovation. Rather than improve the customer experience or increase trust in energy suppliers, they will simply create more hassle and result in a move to the lowest common denominator.

RMR Proposals: tariff changes

5.1 Ofgem’s proposals seek to bring simplicity to the market for evergreen tariffs, but they do not address complexity in the fixed term tariff market. Indeed the implication of the proposals is that Ofgem wishes to move all innovation and competition into the fixed term market.

5.2 We supported the single national unit rate, with an Ofgem set standing charge that was set out in the first Domestic RMR consultation. It remains our position that this would reduce consumer confusion, improve comparability and therefore improve switching. Ofgem appears to have dropped this proposal in favour of either a single tariff with a regional adjuster or supplier set regional tariffs, both of which would be accompanied by an Ofgem set standing charge. Of these two options we support the supplier set regional tariff on the basis that it will be much more straightforward for customers to understand.

5.3 Although we support a single standard tariff as a starting point, we do not support Ofgem’s proposals to prevent discounts being applied. Discounts enable us to support government led initiatives to change consumer behaviour and can be used to encourage socially beneficial behaviour in customers and this should not be restricted to the fixed tariff market.

5.4 Ecotricity will very shortly launch a discount for users of electric cars, to encourage their faster uptake. We are also developing a discount structure for adopters of heat pump technology, to support the forthcoming RHI and encourage adoption of this technology by consumers. We believe that discounts are preferable to having separate tariffs because they enable us to keep our simple two tariff structure, whilst offering both discounts for customers that take up both electric vehicles and heat pumps.

Page 296294 of 298

5.5 We also believe that it is essential that suppliers are able to offer a green tariff in addition to a standard tariff and this should not need to be fixed term. We believe it would be highly detrimental for customers if green tariffs were restricted to fixed term tariffs. Environmental concerns are often a motivator for engagement.

5.6 We do not support proposals to encourage customers into the fixed term market. They are inhibitive for small suppliers; bad for competition and reduce switching.

5.7 Fixed term tariffs are more expensive than variable ones. They require more energy to be purchased in advance which requires more credit. Whilst the Big Six have no problem obtaining credit, this can pose serious risks and substantially increase premiums for independents.

5.8 Fixed term tariffs make comparisons more difficult for consumers because they bring in another variable: tariff length. Their limited nature means that certain prices are only available to new customers that join at a specific time and are not available to existing customers or later switchers. This unequal treatment of customers creates mistrust and resentment in the industry.

5.9 It is our belief that fixed term tariffs discourage switching. For customers that are already nervous about switching, the prospect of being tied into a fixed term contract is likely to present more risk and discourage them further. Once in fixed term contracts the exit fee will discourage switching within the term. The perception of hassle and resulting inertia towards switching means that customers that may take an interest in switching during their tariff, may well have abandoned or forgotten about such intentions when their fixed term ends. Increasing switching, means making it available and attractive to customers at all times, not restricting cost free switching.

6) Consumer education

7) The Impact of the media on public perceptions of energy bills

7.1 We believe that media coverage often distorts public perceptions of bill increases due to the simplicity of reporting. Coverage tends to exaggerate the costs of environmental and social policies and distort perceptions of public subsidies for renewables and focus exclusively on oil prices when it comes to price rises. This ignores increases in distribution and network costs, which account for 30 - 40% of energy bills. Reports also tend to ignore lags in the time it takes for costs to filter through to bills. It is not unreasonable, for example, for a drop in oil prices to coincide with a rise in bills if there was an increase in network costs and/or oil prices six months previously.

7.2 We believe that the public would benefit from more media focus on practical solutions for consumers. Reporters could, for example, help dispel some of the misconceptions customers have about the switching process; help customers better understand their bills and bring more attention to customer satisfaction surveys.

Page 297295 of 298

8) The pros and cons of using levies on bills rather than general taxation to pay for environmental and social policies

8.1 Raising revenue for environmental and social policies through levies on bills has the disadvantage of being regressive policy. Whilst taxation is charged on an ability to pay basis, energy bills are paid by all households and energy bills tend to constitute a much higher portion of expenditure from poor households than wealthier ones.

8.2 At the same time, the poorest consumers do benefit from some of these initiatives and the amount that any individual customer pays depends on his or her consumption.

8.3 We believe that the detail of the policies themselves and who benefits from them is of greater importance than how the funds are raised.

9) Conclusion

9.1 Ecotricity shares the concern that consumers lack engagement in the energy market and believes that the best way to resolve this is to improve simplicity and accessibility. We support proposals to simplify evergreen tariffs but are opposed to any actions that would move more customers into the fixed term market. We do not support any increase in information sent to customers by suppliers. We believe that any measures imposed on suppliers must distinguish between independents, whose customers are by definition more engaged, and incumbent Big Six suppliers.

Page 298296 of 298 CE 35

Written evidence submitted by Andrew Jones of Alquist Consulting Ltd

Executive Summary 1. Greater consumer engagement with the energy markets is essential if renewable energy is to become a bigger part of the UK’s energy mix. By providing consumers with a real time web-based data feed of their energy consumption, external innovation will force change within the ‘big six’ energy suppliers who currently dominate the market.

Agile Consumption – the key to renewable generation 2. One of the best ways to encourage consumer engagement with the energy market would be to force the energy suppliers to make real time consumption data available, as a web based service to all consumers.

3. The consumer could access the data using a password protected website. The consumer could optionally allow third party providers to access their raw energy data on a temporary (with address information withheld) or permanent basis. An innovative market would then develop taking advantage of the data and offering consumers different billing and energy efficiency options. In addition, smart devices could use the data feed to schedule off-peak operation allowing demand to be intelligently smoothed out – essential as renewable energy becomes a bigger part of the UK’s energy mix.

4. The data feed will be infinitely more valuable once half-hourly (or even more frequent) metering is universally available, although the current manual readings would also be useful in the short term. The data feed must be real time, the current model used in the commercial market where data is provided in differing formats, and often delayed by 24 hours or more would not be sufficient.

5. The data feed must be available via the web so it can be used by the consumer and, if permission is granted, by third parties providers. The In-Home Displays proposed as part of the domestic smart meter rollout will not be adequate as they do not allow third parties real-time access to the data.

• A real-time data feed available via a secure web page will allow innovative providers to present consumers consumption in new and compelling ways.

• The data must be provided in a single, simple industry-wide format agreed by the regulator.

6. Making the raw consumption data freely available to the consumer would help end the dominant position the enjoy today.

Page 297 of 298 7. The big six energy suppliers benefit significantly from the status-quo which prevents the timely delivery of energy consumption data to consumers. This in turn dampens the consumers’ motivation for change. The big six will find every reason to resist providing access to the consumers own consumption data but the regulator must insist it is provided in real-time.

8. There is far too little innovation occurring at the big six which has any benefit to consumers. Making the consumers’ own energy data freely available forces innovation from a different direction and enables efficient consumption of our increasingly variable generation capacity.

October 2012

Page 298 of 298 Correspondence between the Chair of the Energy and Climate Change Committee and various publications (CE 36)

(CE 36a)

Letter fro m the Cha ir to the Daily Express, the Daily Mirror, The Daily Telegraph, the Financial Times, The Guardian, The Independent, The Independent on Sunday, The Observer, The Times, The Sun, The Sun on Sunday, the Sunday Express, the Sunday Mirror, The Sunday Telegraph and The Sunday Times

Concerns have been raised in evidence to the Committee’s inquiry into Consumer Engagement with Energy Markets that inaccurate reporting of the costs of ‘green’ energy policies, as levied on domestic energy bills, may be misleading the public. The Committee would like to offer you the opportunity to respond to these concerns in writing.

For exa mp le, Carbon Brief, stated in its written evidence:

Over the past nine months we have followed and analysed media coverage of ‘green’ policy measures and their impact on domestic energy bills in some detail.

In particular, we have noted a series of newspaper articles which overstate the current impact of green policies (or ‘environmental and social costs’) on energy bills. Some appear to be the result of simple errors (for example, confusing electricity prices with energy bills, or ignoring the impact of gas prices on bills), others are the result of research being reported in a what seems to us a highly partial or selective way.1

This view was supported by the Department of Energy and Climate Change, which stated that the impact of environmental and social policies in household energy bills had been “exaggerated” by some media reports when in fact the “costs of these policies represent around 7% of the current average household dual fuel bill”. 2

Ofgem analysis shows that Government programmes to save energy, reduce emissions and tackle climate change currently make up around 4% of gas bills and 10% of electricity bills, 3 and that “higher gas prices have been the main driver of increasing energy bills over the last eight years.” 4 Similarly, Committee on Climate Change analysis has shown that “it is not the case that energy bills are currently high due to costs of low-carbon measures”, with the £455 increase in household energy bills between 2004 to 2010 being “primarily in response to increased wholesale gas costs”. 5 On future costs, the CCC has also found that “it is not the case that future investments in low-carbon capacity will drive very dramatic increases in energy bills by 2020”. 6

1 CE 23 paras 1 and 2 (Carbon Brief) written evidence to the Committee, March 2012. 2 CE 01, para 44 (DECC) written evidence to the Committee, March 2012. 3 Ofgem Updated household energy bills explained (31/ 05/ 12) Factsheet 97 4 Ofgem Why are energy prices rising? (14/ 10/ 11) Factsheet 108 5 Committee on Climate Change (December 2011) p. 14 Household energy bills - impacts of meeting carbon budgets 6 Committee on Climate Change (December 2011) p. 26 Household energy bills - impacts of meeting carbon budgets Concerns have also been raised about the “very polarised” nature of energy and climate coverage in the media and the possibility that this creates “a pressure to find facts which fit stories rather than the other way round.” 7

The Committee would like to offer you the opportunity to respond to the concerns that have been raised in this inquiry before it considers its final report. Please find attached specific questions on which it would be particularly helpful to have your comments.

In addition to these questions, the Committee would welcome your comments on the wider question, “What impact does the media have on public perceptions of energy bills?”, which forms part of the inquiry’s terms of reference.

Please note that the Committee would normally expect to publish your response as written evidence to this inquiry. Thank you in anticipation of your assistance.

Questions on which the Committee would welcome your comme nts

1. The Committee has heard that energy and climate coverage in the media tends to be “very polarised” and that this “seems to create a pressure to find facts which fit stories rather than the other way round.” 8 How do you respond to the suggestion that the media “tends to favour and promote explanations or projections which fit with their editorial line” 9 when reporting on the cost to consumers, in their energy bills, of public investment in renewable energy?

2. Analysis from Ofgem and the Committee on Climate Change shows that the rising wholesale price of gas is the main driver pushing up consumer energy bills. 10 How do you respond to the suggestion that despite “clear and consistent evidence” that this is the case, “it is apparent from recent coverage that this message has failed to reach some sections of the UK media”?11

3. The Committee has received evidence that some news publications “have relied on unverifiable leaked reports or skewed research by think-tanks and individual consultants” when reporting on the effect of renewable energy policies on domestic energy bills, and that these news reports, “particularly the headlines, are highly selective in their use of facts and can often be open to accusations of bias.”12 What steps, if any, does your publication take to ensure that it complies with the Editors' Code of Practice and does not publish “inaccurate, misleading or distorted information” when reporting on these issues?

4. What impact does the media have on public perceptions of energy bills?

17 October 2012

7 Christian Hunt (18/ 09/ 12) Uncorrected evidence to the Energy and Climate Change Committee, Q207 8 Christian Hunt (18/ 09/ 12) Uncorrected evidence to the Energy and Climate Change Committee, Q207 9 CE 23 para 36 (Carbon Brief) written evidence to the Committee, March 2012. 10 Ofgem Why are energy prices rising? (14/10/11) Factsheet 108; Committee on Climate Change (December 2011) p. 14 Household energy bills - impacts of meeting carbon budgets 11 CE 13 (Scottish Renewables) written evidence to the Committee, March 2012. 12 CE 13 (Scottish Renewables) written evidence to the Committee, March 2012. (CE 36 b)

Letter from Jonathan Leake at The Sunday Times to the Chair

Thank you for your letter requesting written evidence for your inquiry into Consumer Engagement with the Energy Markets.

Your letter was prompted by concerns raised in your inquiry that inaccurate reporting of the costs of green energy policies could be misleading the public. You cited Carbon Brief and the Departme nt of Energy and C limate C hange as expressing such concerns. Your key point seemed to be that low carbon energy has added only 7% to the current average household dual fuel bill, whereas fluctuations in fossil fuel prices, especially gas, have had a far greater effect – but that this distinction has not been clearly made in the media.

I note that The Sunday Times appears not to have been cited as a source of such reports so I am happy to make some general comments on that basis. I have also carried out a search o f our cuttings database and have attached a separate file containing 170+ articles published by us in the last two years. The search term used was simply “energy bills” so the results should represent all our stories on this topic since October 2010.

As you will see, most of the more recent articles looking at energy bills are actually about the overall costs and increases. These have been highlighted in blue and there seem to be more than 50 of these. Many of them mention the cost of gas as a primary cause of recent price rises.

Only a relatively small proportion focus on how low carbon generation might lead to increases in domestic energy bills. I have highlighted the headlines of these articles, including reports of the political debates on this issue, in ye llo w. There seem to be about 24 of these.

Many other articles focus on the possible energy and money that could be saved by greening homes and energy systems. These have been highlighted in green. There seem to be more than 50 of these.

As you will see, some articles do not fit easily into any of these categories. They have been left unhighlighted, as have readers’ letters.

Overall then, you will see that that there are far more articles focusing on the benefits of green technologies, whether in people’s homes or in power generation, than there are articles about the costs. This suggests that the allegation put to you that media coverage of energy and climate is polarised does not apply in our case. In fact I would argue that, on the evidence of these articles, our coverage has been very balanced.

You also raise suggestions that some sections of the media have an editorial ‘line’ on climate and energy-related issues. In our case there is no such thing as an editorial line in news reporting on such issues. Our reporting of climate change aims to follow the science and the debates generated by that science, especially on how society should respond to the threat of global warming. Columnists may express their own personal opinions but are expected to back up those opinions with good quality evidence where appropriate. Inevitably, different columnists may express very different opinions and we encourage this diversity rather than dictating any kind of editorial line. We feel that readers of The Sunday Times appreciate a range of opinions rather than being told what to think. Moving on, to the cause of energy price rises, our articles have made it clear that gas is the primary cause of recent increases. However, the concern over the cost of low carbon energy is not the amount added to bills now, when capacity is quite small. Instead, the real concern is over what it will cost in future as the proportion, and amount, of wind, nuclear and other low carbon generation rises. This is a legitimate concern and is the focus of many of the articles highlighted in yellow.

Finally, the suggestion raised by your other witnesses that “some news publications have relied on unverifiable leaked reports or skewed research by think tanks” is vague and very hard to answer without specific examples. I think the best approach here is for you to read the attached reports to see if you believe any of them fit into this category and we can then reply to the specific points raised.

Generally, however, I think you will find that most articles dealing with reports by ‘think tanks” or similar bodies will contain balancing comments from other experts too, either underlining or undermining the claims being made according to the strength of the supporting evidence.

I hope these comments and the attached reports will be useful in your inquiry. Please feel free to come back to us with any further questions.

17 November 2012

Annex

Blue. – List of articles that were highlighted in blue [i.e. articles about overall costs and increases to energy bills (headlines only for copyright reasons).]

This is how you can clean up the energy sector, Mr Cameron – 21 October 2012

Lower-risk funds to beat inflation; Rising prices could wipe out returns, says Holly Thomas – 16 September 2012

Act fast to catch the best fixed-price energy deals; Bargains are disappearing from the market, writes Ali Hussain – 2 September 2012

Watchdog stops oil supporters turning up home heating bills; Customers can save by joining local club, says Melanie Wright – 5 August 2012

Co-op raises energy bills; BRIEFING – 5 August 2012

Battle for revenue ‘ignores decline’ – 22 July 2012

Cold comfort as energy bills climb; Direct debits need to go up to avoid going into the red, writes Ali Hussain – 22 July 2012

Fury as British Gas profits jump 25%; Energy giant cashes in on soaring power bills as 1 in 5 houses faces fuel poverty – 22 July 2012

How to beat inflation in your retirement; The elderly are struggling with rising prices. Jessica Bown looks at steps to make every penny count – 24 June 2012 Knight rides in to save energy – 13 May 2012

French threaten non to nuclear; The new socialist president could make Britain a no-go zone for France’s power companies, says Danny Fortson – 13 May 2012

Laidlaw ready to be clawed – 6 May 2012

Shale gas boom stalls – 15 April 2012

MELTDOWN; When the German power giants Eon and RWE pulled the plug on their UK nuclear power plants, they left Britain’s energy policy in tatters. Danny Fortson reports – 1 April 2012

Cut the volts for shock saving; Most electrical appliances don’t need the high voltage supplied in your mains, writes David Derbyshire – 25 March 2012

How foreign suppliers squeeze British homes; We pay more for our power as European utility firms target UK to boost profits, writes Alexandra Goss – 26 February 2012

Fixed deals dilemma for energy customers; Falling prices mean it could be worth paying exit penalty, writes Ali Hussain – 15 January 2012

Save £6,000 on your bills; Beat the squeeze in the new year by shopping around for the best deals, says Alexandra Goss – 1 January 2012

Prepare for better news on your bills next year; Household costs rose a record amount in 2011, but at least fuel prices have peaked – 18 December 2011

Energy giants pocket £1billion; Utility firms fail to pass on benefits of falling power costs, says Ali Hussain – 27 November 2011

Energy firms pull web deals; Move to simplify bills hits online offers. By Ali Hussain – 6 November 2011

Huhne’s top tips save just £1 a week – 23 October 2011

THE WONDER GAS THAT COULD CUT YOUR ENERGY BILL; It is said to be cleaner, cheaper and more abundant than the ‘natural’ form. So could shale gas save us from higher prices? Tim Rayment reports – 23 October 2011

Where to go to beat inflation; Savers are being forced to take risks, so make sure you know just what you are getting, writes James Charles. MONEY MoT Part 4: SAVINGS – 23 October 2011

Why fixing your energy bills may be a mistake – 23 October 2011

POWER STRUGGLE; Ministers and energy giants need to stop blaming each other for soaring bills and be honest why consumers are heading for a big shock, reports Danny Fortson – 16 October 2011

Don’t bank on bulk to beat energy giants, The government is eyeing Groupon-style schemes, but they are not all they are cracked up to be. By Alexandra Goss Freeze your bills this winter; You may have switched once but it doesn’t mean you still have the best deal on utilities, loans and insurance. Niall Brady reports – 11 September 2011

Energy bills up; N EWS IN BRIEF – 4 September 2011

THE WEEK IN REVIEW – 21 August 2011

Get your finances set for slow growth; With the economy stalled but inflation set to jump, families face tough choices on whether to go for fixed rates on bills and saving, writes Alexandra Goss – 14 August 2011

The budget plan balancing act; Options that take the stress out of paying household bills can come at a price. Niall Brady investigates good value and reveals some of the pitfalls – 14 August 2011

Group buying spreads to solar; Insurers and broadband providers also offer deals, Alexandra Goss reports – 7 August 2011

Act fast to cut bills as Eon raises prices – 7 August 2011

Scottish energy boss gets £2m perk as power prices rocket – 24 July 2011

Next time you scent the stench of a gas bill, strike a match – 24 July 2011

More pain as power giants raise prices; Big three energy suppliers to follow British Gas and Scottish Power with £200 increase – 24 July 2011

Energy bills to rise; TOP STORIES FROM THE UK AND IRELAND – 17 July 2011

Npower bills hit low users – 17 July 2011

Best ways to fight against rising inflation – 17 July 2011

Germans spark £5bn Npower sale; British electricity supplier could be sold as owner RWE struggles to pay down enormous debts – 3 July 2011

Prices soar in ; With nuclear power under a cloud, demand for gas will rocket, writes Danny Fortson – 12 June 2011

Beat the big energy bill rises and fix now; Householders urged to act as Scottish Power leads the utilities in a fresh round of increases, reports Ali Hussain – 12 June 2011

Fears over gas prices; BRIEFING – 22 May 2011

Cost of energy to hit record level – 8 May 2011

What the Japan chaos means for mortgages; Interest rates could stay lower for longer but energy bills will have to go up, report James Charles and Ali Hussain – 20 March 2011

Energy bills to rise — again - 13 March 2011

School’s D minus for waste – 6 February 2011 How to be £2,000 richer in 2011; Household budgets will be hit hard this year, but our tips will keep you afloat. By Ali Hussain – 2 January 2011

Watchdog lays down the law to energy firms – 2 January 2011

End of year checklist: beat the pain of price rises in 2011; Vat, tax and energy will pile on the pounds, says Alexandra Goss, so trim home and car costs now NAZARD AVOIDANCE – 12 December 2010

Gas firms to raise prices in big chill – 5 December 2010

Centrica has the power to spread gains; INSIDE THE CITY – 5 December 2010

Put the brake on soaring bills; As if rising energy bills were not enough, car cover is also on the rise. Alexandra Goss looks at how to keep to your budget – 7 November 2010

Green – List of articles that we re highlighted in green [i.e. articles about possible energy and money that could be saved by greening homes and energy systems (headlines only for copyright reasons).]

A warmer welcome; Insulation slashes energy bills, but what else can you do besides lining the loft? There are many ways to hot things up at home, says Ross Clark – 28 October 2012

Warm Front; The government launches it Green Deal next month, but it will take until the new year to kick in. Cherry Maslen explains how to cut bills now – 23 September 2012

£10,000 loans for eco homes – 15 July 2012

Catching some rays; With feed-in tariffs dropping and energy prices rising, are solar panels still worth it, asks Cherry Maslen – 8 July 2012

Low energy is boost for sale price of homes – 8 July 2012

Make it a hot property; Hefty energy bills can put buyers off big country houses. Cally Law meets a couple who have fired up interest in their home by going green – 17 June 2012

Green homes plan under fire; A controversial scheme to cut household fuel bills faces its first test, writes Oliver Shah – 10 June 2012

Extra time to generate returns on solar schemes; There will be a month’s delay to the cut in fe ed-in tariffs, but should you rush in? Alexandra Goss reports – 27 May 2012

Insulate to accumulate; Making your home more energy-efficient has never been easier — or cheaper — thanks to a host of grants and incentives. By C herry Maslen – 22 April 2012

A painless way to offload your guilty green secret – 15 April 2012

Take steps to cut your household energy bills; Switch to a cheaper deal and make your home more efficient, writes Ali Hussain – 15 April 2012

Minister wants to wrap Britain’s period homes in 8in of cladding – 25 March 2012 Turn that light off and let the sun in; Strip out theose fluorescent bulbs. New technology can harness natural light instead, says Mark Harris – 18 March 2012

The best apps for your new iPad; From energy bills to eating out, the latest gadgets help you save more and spend less, says John Greenwood – 18 March 2012

Now, how do I keep your home warm? Too few people have been trained to make our homes energy efficient, says Karl West – 11 March 2012

To save on power, just phone home; GREEN PIONEERS Colin Calder’s smart systems control energy consumption – 5 February 2012

MEET THE A TEAM – 29 January 2012

Greenhouse effects; Window sealant – 29 January 2012

Time for a cash diet – 8 January 2012

End of the road for petrol cars; by 2050, say ministers, all cars and vans must run on low- carbon electricity. Jonathan Leake reports – 4 December 2011

Clear winner; This year’s Riba Manser architecture prize has gone to a 1960s home that has been stripped back to the bare essentials, says Hugh Graham – 13 November 2011

Try a wee dram of the green stuff; Whiskey makers are using their waste to produce electricity. Matthew Goodman reports – 30 October 2011

Job done: £1,200 off bills and emissions cut by 70%; A draughty old home is being used to test the new Green Deal. Can it convince hard-up families to take action, asks Oliver Shah – 23 October 2011

The ‘€25k house’ can change our lives – 9 October 2011

Turn up the heat with Marmite; leftovers of the ‘love it or hate it’ spread will be recycled to generate energy at the plant where it’s made, reports Karl West – 2 October 2011

That’s beautifully efficient; Passive houses have had a bad name for putting mathematics ahead of aesthetics — until now, discovers Mark Keenan – 2 October 2011

RETROFITTING CAN SAVE HOUSEHOLDS AN [...] – 25 September 2011

I’m going to tackle my energy costs before the lights go out; In the first of a series, former Money editor of the ‘squeezed middle’ Naomi Caine counts the pennies – 21 August 2011

Energy-filled house means zero bills – 21 August 2011

Sun sets on solar power subsidies – 31 July 2011

Council houses are made of straw; Local authorities across the country are rushing to embrace traditional building methods, says Michael Wale – 31 July 2011

Stop the drain on your finances; Bathing with a friend is all very well, but fitting a water meter could be more effective in cutting costs, says Cally Law – 31 July 2011 Wind is behind Jenson’s boffin; GREEN PIONEERS Ben Wood’s Anakata is using Formula One technology to build smaller, more powerful turbines, writes Oliver Shah – 24 July 2011

Turning a profit; Wind turbines aren’t cheap to install, but those blades can shred your energy bills, writes Niall Toner – 17 July 2011

The town with a warm, green heart; A communal heating system will help Cranbrook in Devon to become a low-carbon community, says Oliver Shah – 10 July 2011

Does solar power still pay its way? The returns from installing panels could be lower than predicted, writes Alexandra Goss – 10 July 2011

Making money while the sun shines; SWITC HED ON – 10 July 2011

Power houses; Energy from the sun could cut your bills by €1.000 a year. Mark Keenan compares the different systems on offer – 3 July 2011

Soak up the savings; Free warmth from outside your door — green dream or a load of hot air? Cally Law explains how it can work for you – 3 July 2011

Being energy-efficient can heat up your fuel costs; Complex rates mean lowest usrs face the steepest rises, writes Ali Hussain – 19 June 2011

The heat is on; With energy prices set to go through the roof, Cherry Maslen tells you how to save power — and generate your own – 12 June 2011

M&S could soon be insulating your home; High street names may back government’s energy-efficiency drive. By Alexandra Goss – 5 June 2011

Ways to take revenge on the utility giants; Households can make huge savings by thining small, says Ali Hussain – 15 May 2011

Go green and be paid to drive your new car; Invest in solar panels and an electric vehicle and you could make a profit, says Ali Hussain – 8 May 2011

Formula O ne trains van drivers; The Williams team is putting Sainsbury’s on the road to energy savings, says Karl West – 1 May 2011

Seal approval; This airtight Victorian eco-home has no draughts — and energy bills of just £100 a year, says John Elliot – 20 March 2011

Insulation, not eco bling, is the key to green living, says Prince Charles – 6 March 2011

The power station in my bathroom; GREEN PIONEERS Adrian Hutchings created a boiler that generates electricity, reports Kasmira Jefford – 20 February 2011

Talking about our generation; Will green households lose out as the government reviews its incentives for home-grown energy production, asks Rob Kingston – 20 February 2011

Come on you greens; Rio Ferdinand, the England captain, is on a mission to become Britain’s eco-frie ndliest footballer. He tells Laura Latham why – 6 February 2011 Shocked by the power; As energy bills soar, Caroline Scott asks a meter man how to slash costs (step one: ban halogen lights) – 30 January 2011

A window of opportunity; There’s more to glass than meets the eye, so don’t overlook its importance, says Cherry Maslen – 2 January 2011

HARNESSING YOUR POWER; ADVERTISING PROMOTION Sit back and relax, while EDF Energy’s new EcoManager monitor helps you to start cutting your bills – 14 November 2010

Got a £100m home to heat? Better dig deep – 7 November 2010

Huhne’s Green Deal leaves landlords in disarray – 7 November 2010

Ye l lo w – List of articles that were highlighted in yellow [i.e. articles about how low carbon generation might lead to increases in domestic energy bills (headlines only for copyright reasons).]

Monster power bills leave the public shivering; ENERGY AND ENVIRONMENT Consumers are having to bear the cost of big subsidies in the battle against climate change. Danny Fortson reports – 28 October 2012

Snuffed out; BRIEFING LIGHT BULBS The 100-year-old incandescent light bulb is going dark. The energy-hungry bulb has been banned by the EU but, reports Josh Glancy, householders are finding ways around the law – 2 September 2012

Trump blow to subsidies for turbines; American billionaire supports Tory critics of Westminster’s policy on renewable energy, writes Mark Macaskill – 22 July 2012

Energy prices to surge – 15 July 2012

Nuclear talks heat up – 1 July 2012

Something rotten blows in; A pay scandal in Denmark could take the wind out of Britain’s green sails. By Bojan Pancevski – 8 April 2012

Wind adds £45bn to cost of climate change targets – 4 March 2012

Yo-ho-ho! Give us a buccaneer’s budget – 26 February 2012

THE GREAT WIND ROBBERY; Opinion is divided on who gains from Alex Salmond’s ambition for Scotland to be the ‘Saudi Arabia of renewables’, writes Gillian Bowditch – 19 February 2012

Green energy could blot out countryside – 20 November 2011

Ditching wind farms ‘will save £34bn’; A new study says Britain can hit its carbon targets more cheaply with gas and nuclear power. Danny Fortson explains how – 6 November 2011

Solar left in the shade by marine funds – 23 October 2011 Osborne angers No 10 by stalling green energy boost – 9 October 2011

Cost of £200m jeopardises Lewis wind farm scheme – 21 August 2011

Householders face big upfront costs in British Gas green plan; Loans may take years to pay for themselves, writes Ali Hussain – 24 July 2011

Huhne sparks £200bn clean energy shake-up; Household bills set to double over decade to pay for nuclear power and wind farms – 10 July 2011

Industry rebels on carbon targets; Chemical firms lead calls to halt a leap in costs that could lead to the loss of hundreds of thousands of jobs. Report Danny Fortson – 22 May 2011

Energy policy in meltdown; The disaster at Fukushima has delayed plans to create a low carbon power industry in Britain, writes Danny Fortson – 1 May 2011

Airtricity faces inquiry on bills; Direct debit customers amass debts of up to €1,500 after ‘systems glitch’ at energy firm, writes Mark Keenan – 24 April 2011

Carbon P lan could double householders’ energy bills – 13 March 2011

Chemicals cry for help – 6 February 2011

Low carbon comes at high price – 19 December 2010

Your £130bn bill for green energy; A minister says householders must pay ‘significantly’ more to ensure cleaner, secure power, writes Jonathan Leake – 5 December 2010

(CE 36 c)

Letter from John Thornhill, Deputy Editor, Financial Times, to the Chair

1. In our news coverage, the Financial Times has for 124 years attempted to report the objective facts of any story as best it can without ideological slant. Our readers, who often invest on the basis of information published by the FT, expect us to provide accurate, timely and relevant reporting. They are our best regulators; they certainly let us know- often in forceful terms - if they think we are providing inaccurate or partial information or have been hoodwinked by a particular lobby group.

2. We endeavour to draw a clear distinction between news and comment. But even when we do publish strong opinions in our editorial columns or from our columnists or outside contributors, we aim to do so on the basis of verifiable facts. As a matter of policy, we correct material errors whenever they are brought to our attention and amend our online stories accordingly.

3. The first line of accurate reporting always has to be the reporter. In the case of the environment, we have appointed one of our most trusted and experienced reporters, Pilita Clark, to cover the beat. She is supported in London by Clive Cookson, our science editor, and a team of energy reporters, including Guy Chazan and Sylvia Pfeifer, who are also first- rate journalists.

4. The FT still has a largely reporter-driven news culture so most of the stories we cover on climate change and the environment are generated by our correspondents. They discuss their story ideas with the relevant section editors (eg UK news, World, Companies, Markets, Analysis) who will decide whether to commission a story.

5. Once the article is filed, the line editor scrutinises the copy for accuracy, concision and impact and ensures it does not contain "inaccurate, misleading or distorted information". The story will then be read again by a sub-editor before it is published online or in the newspaper. The sub-editor will write the headline and stand-first for the story with the aim of enticing readers to take an interest in the article without betraying its accuracy.

6. If unsure about the sourcing of the story, the line editor will challenge the reporter on the reliability of the information. Our own editorial guidelines insist on a reporter having at least two sources for any story. We will, as a matter of practice, aim to put any contentious claims to the party concerned.

7. If line editors are in doubt about a particular story, they will ask a more senior editor for their view. We also have an in-house lawyer, sitting on the news floor, who is regularly consulted about contentious stories and any concerns over legal or compliance issues.

5 December 2012

(CE 36 d)

Letter from Benedict Brogan, Deputy Editor, The Daily Telegraph, to the Chair

Thank you for your letter addressed to Tony Gallacher, Editor of the Daily Telegraph. He has asked me to reply.

You suggest that concerns have been raised in evidence to the Committee’s inquiry into Consumer Engagement with Energy Markets that inaccurate reporting of the costs of ‘green’ energy policies, as levied on domestic energy bills, may be misleading to the public. The concerns appear to have been raised by single issue lobbying organisations. You asked for our thoughts, and I am happy to be able to make the following points in the hope that they might assist the committee.

1. The costs of green energy are hotly disputed but we report all sides of the debate. This is our report of the climate change committee’s suggestion that the costs of green energy are exaggerated:

http://www.telegraph.co.uk/earht/environment/8957137/Green-energy-will-only-add- 100-to-bills.html

2. We have published a number of articles suggesting that gas prices are to blame for soaring bills. At the same time, companies – SSE, Scottish Power, British Gas – a lso point out the green taxes are part of the reason why they are putting up prices, on top of wholesale rises, see:

http://www.telegraph.co.uk/finance/personalfinance/consumertips/household- bills/9493143/Five-million-ho me s-fa ce-shock-energy-rise.html

And:

http://www.telegraph.co.uk/earth/energy/9575477/families-fac e-sharp-r ise-in-winter- energy-bills.html

3. This is our report of the Government’s position:

http://www.telegraph.co.uk/news/9282705/Households-to-pay-around-100-more-a- year-fo r-electricity-by-2030.html

The Government position on how much going green will cost is confusing and lacks transparency. There are no estimates of how much energy would cost without any environmental taxes or carbon trading.

The report says that without the green reforms of the Energy Bill, household bills would be £200 higher. But it’s “no reforms” scenario still includes the effects of carbon trading and the carbon floor price, which artificially raise prices by making gas and coal generation more expensive and wind/nuclear more economic in comparison. Think-tanks have warned the Government is underestimating the cost of green reforms and issues misleading figures:

http://www.policyexchange.org.uk/media-centre/in-the-news/category/item/row-over- cost-of-p la ns-fo r-green-energy

4. Experts/consumer groups are also worried about the impact of green taxes:

http://www.telegraph.co.uk/news/9509020/Green-taxes-on-fuel-bills-nearly-double- website-says.html

http://www.telegraph.co.uk/earth/environment/climatechange/9137213/Consumer- watchdog-Which-co nde ms-green-tax.html

On a more general point, I am uneasy that a Committee of the House of Commons appears to be asking a newspaper to justify its reporting on a particular issue based on vague, partisan criticisms from lobby groups with an interest in the issue. If any of these organisations wishes to complain about any aspect of our reporting, the appropriate forum is the Press Complaints Commission, or in the event of a libel, the Courts. We are anxious to help the committee in any way possible, but I would deplore any attempt by third parties to use your committee to settle scores with the media.

8 November 2012

(CE 36 e )

Le tte r fro m Tim Jotischky, Deputy Editor, The Sunday Telegraph, to the Chair

Thank you for your letter addressed to Ian MacGregor, Editor of the Sunday Telegraph. He has asked me to reply.

You suggest that concerns have been raised in evidence to the Committee's inquiry into Consumer Engagement with Energy Markets that inaccurate reporting of the costs of 'green' energy policies, as levied on domestic energy bills, may be misleading the public. The concerns appear to have been raised by single issue lobbying organisations. You asked for our thoughts, and I am happy to be able to make the following points in the hope that they might assist the committee.

1. The costs of green energy are hotly disputed but we report all sides of the debate. This is our report of the climate change committee' s suggestion that the costs of green energy are exaggerated: http://www.telegraph.co.uk/earth/environment/8957137/Green-energy-will-only-add-100-to- bills.html

2. We have published a number of articles suggesting that gas prices are to blame for soaring bills. At the same time, companies - SSE, Scottish Power, British Gas – also point out that green taxes are part of the reason why they are putting up prices, on top of wholesale rises, see: http://www.telegraph.co.uk/finance/personalfinance/consumertipslhouseholdbills/9493143/Fi ve-million-homes-face-shock-energy-rise.html and: http://www.telegraph.co.uklearth/energy/9575477/Families-face-sharp-r is e-in-winterenergy- bills.htrnl

3. This is our report of the Government's position: http://www.telegraph.co.ukJnews/9282705/Households-to-pay-around-l OO-more-ayear-for- electric ity-by-2030.html

The Governme nt position on how much going green will cost is confusing and lacks transparency. There are no estimates of how much energy would cost without any environmental taxes or carbon trading.

The report says that without the green reforms of the Energy Bill, household bills would be £200 higher. But its "no reforms" scenario still includes the effects of carbon trading and the carbon floor price, which artificially raise prices by making gas and co a l ge neration more expensive and wind/nuclear more economic in comparison. This skews the comparison. Think-tanks have warned the Government is underestimating the cost of green reforms and issues misleading figures: http://www.policyexchange.org.ukJmedia-centre/in-the-news/categorylitem/row-overcost-of- plans- fo r-green-energy

4. Experts/consumer groups are also worried about the impact of green taxes: http://www.telegraph.co.ukJnews/9509020/Green-taxes-on-fuel-bills-nearly-doublewebsite- says.htrnl http://www.telegraph.co.ukJearth/environment/climatechange/9137213/Consumerwatchdog- Which-condemns-green-tax.htrnl

On a more general point, I am uneasy that a Committee of the House of Commons appears to be asking a newspaper to justify its reporting on a particular issue based on vague, partisa n criticisms fro m lobby groups with an interest in the issue. If any of these organisations wishes to complain about any aspect of our reporting, the appropriate forum is the Press Complaints Commission, or in the event o f a libel, the Courts. We are anxious to help the committee in any way possible, but I would deplore any attempt by third parties to use your committee to settle scores with the media.

7 November 2012 (CE 36 f) Letter from the Chair to The Sunday Telegraph

Claims made by Christopher Booker last Sunday "It is wind power that will send our bills sky-high" are grossly exaggerated.

Firstly he claims that "George Osborne's carbon tax due next April.....alone will double our energy bills". This exaggerates its impact no less than 25 times as the Treasury's published calculations show that by 2017 electricity prices will actually be 4 per cent higher as a result of this measure.

Secondly he claims that Britain will build 30,000 wind turbines before 2020. This is four times more than the true figure of 7,000 published in the Government's Renewable Energy Roadmap.

Thirdly he claims these turbines will cost £100 billion. As the draft Energy Bill makes clear, total investment in electricity generation will be £75 billion and this includes all new investment in gas fired power stations and nuclear power, as well as all types of renewable energy - not just wind. The actual cost of new wind turbines is therefore only a fraction of the amount claimed.

Booker's disregard of the facts does not inspire confidence in his conclusions.

24 October 2012

(CE 36 g) Letter fro m the Cha ir to the Daily Mail and The Mail on Sunday

Concerns have been raised in evidence to the Committee’s inquiry into Consumer Engagement with Energy Markets that inaccurate reporting of the costs of ‘green’ energy policies, as levied on domestic energy bills, may be misleading the public. The Committee would like to offer you the opportunity to respond to these concerns in writing.

For example, Carbon Brief, stated in its written evidence:

Over the past nine months we have followed and analysed media coverage of ‘green’ policy measures and their impact on domestic energy bills in some detail.

In particular, we have noted a series of newspaper articles which overstate the current impact of green policies (or ‘environmental and social costs’) on energy bills. Some appear to be the result of simple errors (for example, confusing electricity prices with energy bills, or ignoring the impact of gas prices on bills), others are the result of research being reported in a what seems to us a highly partial or selective way.13

This view was supported by the Department of Energy and Climate Change, which stated that the impact of environmental and social policies in household energy bills had been

13 CE 23 paras 1 and 2 (Carbon Brief) written evidence to the Committee, March 2012. “exaggerated” by some media reports when in fact the “costs of these policies represent around 7% of the current average household dual fuel bill”. 14

Ofgem analysis shows that Government programmes to save energy, reduce emissions and tackle climate change currently make up around 4% of gas bills and 10% of electricity bills, 15 and that “higher gas prices have been the main driver of increasing energy bills over the last eight years.” 16 Similarly, Committee on Climate Change analysis has shown that “it is not the case that energy bills are currently high due to costs of low-carbon measures”, with the £455 increase in household energy bills between 2004 to 2010 being “primarily in response to increased wholesale gas costs”. 17 On future costs, the CCC has also found that “it is not the case that future investments in low-carbon capacity will drive very dramatic increases in energy bills by 2020”. 18

Concerns have also been raised about the “very polarised” nature of energy and climate coverage in the media and the possibility that this creates “a pressure to find facts which fit stories rather than the other way round.” 19

The Committee would like to offer you the opportunity to respond to the concerns that have been raised in this inquiry before it considers its final report. Please find attached specific questions on which it would be particularly helpful to have your comments.

In addition to these questions, the Committee would welcome your comments on the wider question, “What impact does the media have on public perceptions of energy bills?”, which forms part of the inquiry’s terms of reference.

The Committee would further welcome your comments regarding the evidence we have received from Carbon Brief that the Daily Mail and the Mail on Sunday have reused inaccurate figures on several occasions, even after they had printed corrections to those figures following successful complaints to the Press Complaints Commission. Please see the attached excerpt from Carbon Brief’s written evidence outlining the details. 20

Please note that the Committee would normally expect to publish your response as written evidence to this inquiry.

Questions on which the Committee would welcome your comme nts

1. The Committee has heard that energy and climate coverage in the media tends to be “very polarised” and that this “seems to create a pressure to find facts which fit stories rather than the other way round. ”21 How do you respond to the suggestion that the media “tends to favour and promote explanations or projections which fit with their

14 CE 01, para 44 (DECC) written evidence to the Committee, March 2012. 15 Ofgem Updated household energy bills explained (31/ 05/ 12) Factsheet 97 16 Ofgem Why are energy prices rising? (14/ 10/ 11) Factsheet 108 17 Committee on Climate Change (December 2011) p. 14 Household energy bills - impacts of meeting carbon budgets 18 Committee on Climate Change (December 2011) p. 26 Household energy bills - impacts of meeting carbon budgets 19 Christian Hunt (18/ 09/ 12) Uncorrected evidence to the Energy and Climate Change Committee, Q207 20 CE 23 paras 12 to 24 (Carbon Brief) written evidence to the Committee, March 2012.

21 Christian Hunt (18/ 09/ 12) Uncorrected evidence to the Energy and Climate Change Committee, Q207 editorial line” 22 when reporting on the cost to consumers, in their energy bills, of public investment in renewable energy?

2. Analysis from Ofgem and the Committee on Climate Change shows that the rising wholesale price of gas is the main driver pushing up consumer energy bills. 23 How do you respond to the suggestion that despite “clear and consistent evidence” that this is the case, “it is apparent from recent coverage that this message has failed to reach some sections of the UK media”?24

3. The Committee has received evidence that some news publications “have relied on unverifiable leaked reports or skewed research by think-tanks and individual consultants” when reporting on the effect of renewable energy policies on domestic energy bills, and that these news reports, “particularly the headlines, are highly selective in their use of facts and can often be open to accusations of bias.”25 What steps, if any, does your publication take to ensure that it complies with the Editors' Code of Practice and does not publish “inaccurate, misleading or distorted information” when reporting on these issues?

4. What impact does the media have on public perceptions of energy bills?

5. As outlined above, the Committee has heard from Carbon Brief that the Daily Mail and the Mail on Sunday have reused inaccurate figures on several occasions, even after they had printed corrections to those figures following successful complaints to the Press Complaints Commission that the use of those figures was inaccurate and misleading. How do you account for this reuse of inaccurate figures and what steps have you taken to ensure that the same figures will not be used in this way in future?

17 October 2012

Excerpt from Carbon Brief evidence regarding the use of inaccurate figures by the Daily Mail and The Mail on Sunday

12. [The] theme of "green taxes" came to prominence on 9th June 2011 with a front-page Daily Mail story26 and a series of follow-up articles stating that green policy measures were adding £200 to household energy bills. The Mail set out its views on the subject in an editorial on the same day:

13. "... huge uncertainties surround the science of climate change. Yet at immense cost, the Government is blindly committing Britain to the world's most ambitious targets for cutting carbon emissions. Already millions are feeling acute pain, through hidden levies which have contributed to the latest £200-a-year increases in our energy bills... the scandal is that these secret extras which add 15 to 20 per cent aren't even itemised on our gas and electricity bills."27

22 CE 23 para 36 (Carbon Brief) written evidence to the Committee, March 2012. 23 Ofgem Why are energy prices rising? (14/10/11) Factsheet 108; Committee on Climate Change (December 2011) p. 14 Household energy bills - impacts of meeting carbon budgets 24 CE 13 (Scottish Renewables) written evidence to the Committee, March 2012. 25 CE 13 (Scottish Renewables) written evidence to the Committee, March 2012. 26 The Da ily Mail, Hidden green tax in fuel bills, 9 Jun 2011 27 The Da ily Ma il, 'Inconvenient Truths' (editorial), 9th June 2011, p.14 14. This Daily Mail piece initiated an upturn in coverage of this area by the Mail, which was gradually picked up by other parts of the press. The framing and figures the Mail adopted were repeated by other newspapers. Headlines at the time included: "Green taxes make up 20 percent of household energy bills, campaigners warn" (Daily Telegraph)28, "Industry begins to count the true cost of ’climate change’" (Sunday Telegraph)29, "Families hit by £200 green tax in energy bills" (Daily Express).

15. This initial claim that ‘green taxes’ made up between 15 and 20 percent of an average household's combined annual gas and electricity bill (from £154 to £206 – often abbreviated to £200) was sourced to the thinktank the Global Warming Policy Foundation (GWPF) 30. At the time Ofgem's equivalent view was that "environmental costs" contributed £80 or around 8% to the average annual gas and electric bill 31, whilst DECC estimated that they accounted for 4% of the average bill32.

16. We have made a submission to the Leveson Inquiry in which we set down our interactions with the Mail Group and the PCC on this issue in some detail. 33 To summarise, we complained to the PCC that the £200 figure was inaccurate and misleading. The Mail initially contested the complaint, citing figures from BERR featured in a 2008 report by the thinktank Civitas.34 These figures did not substantiate the claim, as they referred to electricity rather than energy, the high end figure applied to non-domestic bills, and most relevantly the figures had been updated by newer analysis from BERR's replacement DECC.

17. We pointed this out, and the Mail printed a correction to their coverage on 7th September 2011. 35 However, shortly afterwards, the Mail on S unday re-used the original £200 figure in two different editorials. After we complained again, the Mail on Sunday printed a correction to both of these claims on 14th November 2011. Meanwhile, the Daily Mail had inaccurately claimed in two different editorials that green energy measures were currently adding £300 to bills. We made a third complaint and the Daily Mail printed a third correction on 19th December 2011. Despite three corrections from the Mail group on this issue, the Daily Mail subsequently re-used the inaccurate £200 figure in a Money Mail column in January36.

18. In making the case that green energy measures represent a significant and rising proportion of energy bills, the Mail produced other coverage which was confused at best, and in some cases deliberating misleading:

19. The Mail wrote a front-page headline article claiming that energy bills are “set to rise by around £1,000 a year - to £2,000” as a result of green policies, based on research by the bank Unicredit. This research was not publicly available. When we obtained a

28 The Telegraph, Green taxes make up 20 per cent of household energy bills, campaigners warn, 9 Jun 2011 29 The Telegraph, Industry begins to count the true cost of ‘climate change’, 11 Jun 2011 30 The GW PF , The Hidden Green Taxes in UK Fuel Bills, 8 Jun 2011 31 Ofgem, Updated Household bills explained, 18 Jan 2011 32 DECC, Estimated impacts of energy and climate change policies on energy prices and bills, Nov 2011 33 http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/Sub mission-by-Carbon-Brief.pdf 34 Civitas, British energy policy and the threat to manufacturing industry, April 2010 35 Carbon Brief, Daily Mail prints correction over GWPF green tax claims, 7 Sep 2011 36 The Da ily Mail, Reveal this ‘green tax’ on fuel bills, 14 Jan, 2012 copy, the figure was cited just once, in a section which had been quoted in a blog by the FT some months before 37. It seems likely that the Mail had not seen the report. The report did not detail how the figure had been calculated, or specify how much of the projected cost increase would be due to green policies.

20. In covering research which concluded rising energy bills were the result of both increased wholesale gas prices and green policies, the Mail omitted the findings about gas prices and focused only on green policies 38. The Mail’s headline “Green taxes could force one in four into fuel poverty” misrepresented the report’s findings which were that rising gas prices would account for a significant proportion of any rise in bills.

21. In discussing a report by the Climate Change Committee, the Mail’s headline was “Electricity bills to rocket by 25% because of 'green' targets, says Government”. 39 This 25% figure was from an annex of the report, and applied only to the one in ten “non-typical” households which use electric heating and which would be disproportionately impacted. This was not mentioned in the article 40;

22. Two months after the Mail covered DECC’s figures on energy bills on the front page 41, they ran another story using the same figures. The headline: “Official: Green taxes add 15% to your bills” inflated DECC's estimate of green costs from 7% to 15%, by conflating energy bills with electricity prices.

23. According to an article in ENDS, the Mail “put on the war paint” to "campaign" against green taxes during this period42. Over the nine months, the Mail group printed three separate corrections to its coverage of energy bills following PCC complaints which we made. This did not prevent them from repeating the inaccuracies in question, but these three corrections demonstrate that the Mail's campaign was launched on the basis of inaccurate figures.

24. Coverage by any national newspaper, particularly of this volume, is a significant part of the public debate. The Daily Mail is widely read and it seems reasonable to conclude that this extensive coverage has not improved public understanding of this issue. In the wake of and presumably inspired by the Mail's coverage, other media organisations started to focus on the effect of green policies on energy bills. The Mail’s campaign was also seen to have a political impact after George Osborne referenced the impact of green measures on bills in his conference speech.43

37 Carbon Brief, A thousand pounds on energy bills due to green policies?, 20 July 2011 38 Carbon Brief, Mail story on energy price rises ignores the role of spiralling wholesale fuel costs, 12 Oct 2011 39 The Da ily Mail, Electricity bills to rock et by 25% because of ‘green’ targets, says Government, 15 Dec 2011 40 Carbon Brief, Analysis of ‘non-typical households’ used to support misleading reporting of energy bills, 15 Dec 2011 41 The Da ily Mail, Green ‘tax’ to rise every year, 24 Nov 2011 42 ENDS Report blogs, Lord Lawson and the Daily Mail gang up on green energy taxes, 26 Jul 2011 43 See for example The Guardian, Ho w to solve ‘green growth denial in one stroke’. 27 October 2011 (CE 36h)

Letter to the Chair from Alex Bannister, Group Managing Editor at Associated Newspapers, on behalf of the Daily Mail and The Mail on Sunday

Thank you for your letter dated 17 October 2012 and for providing Associated Newspapers Limited ("ANL") with the opportunity to respond to the various concerns raised in it. Responses to your various questions are set out below:

Questions 1 - 3

These questions are broadly related and are addressed collectively for convenience. We understand the Committee to be asking for ANL's response to claims that, in relation to the cost to consumers of public investment in renewable energy:

• the media "tends to favour and promote explanations or projections which fit with the ir editorial line"; • the message that the rising wholesale price of gas is the main driver pushing up consumer energy bills has failed to reach some sections of the UK media; and • news publications are "highly selective in their use of facts and can often be open to accusations o f b ias ", perhaps even in breach of the Editors' Code of Practice (the "PCC Code").

These questions are somewhat abstract and it is difficult to respond to them in any detail; however there are a number of general points that ANL would like to make : a) ANL's titles go to great lengths to write about important matters such as these in a way whic h is informative, accessible and engaging. They need to do so in order to interest me mber s of the public in the {often complex) subject matter and encourage public debate on what are very important issues. In this regard, we refer to the evidence given by F iona Fox, chief executive of the Science Media Centre (o f which ANL is a funder), to the Leveson Inquiry:

"The science, health and environment journalists who write for the tabloids and on newspapers are brilliant. They are genius. Every single day they communicate very complicated and very important science to a mass audience ... Much of the coverage is accurate and balanced and the scientific community owes a huge debt to the skill and dedication of the excellent specialist science, health and environment journalists employed by every national newspaper. {24 January 2012) b) ANL's journalists make every effort to publish accurate reports on these matters, as they do in relation to all the articles that are published in ANL's titles. This is both because of the importance that ANL places on compliance with the PCC Code {for example, such compliance is a term o f journalists' contracts) and because ANL titles strive to publish accurate reports to maintain their readers' trust. c) It is true that, as in relation to articles on all subjects, mistakes are occasionally made. This is hardly surprising given the quantity of material published every day, the varied and often complex nature of the issues addressed and the time pressures involved. However, the Committee should be wary of reading too much into these occasional errors; particularly where they are highlighted by pressure groups with their own interests to pursue. The fac t is that these mistakes are the exception rather than the rule. d) The accusation that ANL is merely pursuing an 'editorial line' displays a misunderstanding of how ANL and its titles operate. ANL operates numerous and varied titles (each with their own entirely independent editorial teams) which themselves operate in different parts of the UK and, in the case of Mail Online, globally and employ an immensely diverse range of journalists. The primary purpose of these titles is to produce accurate reports of issues that are of concern to their readers. ANL's titles also employ columnists who express their own views on the issues of the day. This may be uncomfortable for certain groups who would rather certain issues went unchallenged; however it is important that these reports are produced and these views can be expressed. The debate on green taxes in particular is an on-going one within the pages of ANL's titles and within the media more generally. e) There is significant scope for honest disagreement around energy costs and how they should be quantified and/or allocated between different sectors and it is important that competing arguments and opinions are expressed on the matter in order for there to be a proper, informed public debate about these issues.

Question 4

ANL is not in a position to ascertain what impact the media has on public perception of energy bills. We can only comment on what ANL's titles hope to achieve through their reporting and that is to report in an accurate, accessible and engaging way in order to encourage public debate on these important issues (see the responses regarding questions 1-3 above).

Question 5

The Committee has asked for ANL's response to various claims made by Carbon Brief about the Daily Mail and the Mail on Sunday's "use of inaccurate figures " regarding the impact of green policy measures on household energy bills. As we understand them, Carbon Brief's claims are as follows: a) Inaccurate figures were reused in the Daily Mail and the Mail on S unday on several occasions (namely that green energy measures were accounting for up to £200 of annual household energy bills), even after they had printed corrections to those figures following successful complaints to the Press Complaints Commission. Carbon Brief appears to be alleging ANL's coverage in this regard was deliberately misleading.

Carbon Brief's complaint is based on an assumption that the Daily Mail and the Mail on Sunday knew the £200 figure was inaccurate prior to publication. This is incorrect.

The Daily Mail used this figure on 9 June 2011 having calculated it using information from a 2008 report by the think-tank Civitas and figures provided by the DECC. Similar figures had been used previously in articles published in the Daily Mail without complaint (see, for example, an article dated 28 September 2010 enclosed as attachment 1 (not printed) ). At the time of publication, the Daily Mail believed this figure to be accurate. When Carbon Brief subsequently explained the inaccurac ies in the calculations made by the paper, the Daily Mail agreed to publish a correction (which it did on 7 September 2011). For its part, the Mail on Sunday based its reports on 18 September 2011 and 18 October 2011 on figures it had sourced entirely independently from the Daily Mail (in this case from information provided by government and energy industry sources) and the editorial team were not aware that the previous use of a similar figure by the Daily Mail had led to a correction. This is unsurprising given that the newspapers have entirely separate editorial tea ms and used different sources fo r the figures used. When the Mail on Sunday received Mr Hunt's complaint to the PCC, it agreed to publish a correction.

In short, at the time of publication, both newspapers believed (and had reasonable grounds to believe) the figures they were using were accurate. It is also worth noting that at least one of the articles Mr Hunt has complained of included a link to an online forum where comment pieces from a number of competing sources were published (including sources citing the competing OFGEM figures which Carbon Brief considers to be authoritative): http://www.fmwf.com/extra/blogs/lisa-buckinghams-blog/2012/01/reveal-this-green-tax-on- fuelbills/ b) An article appeared in the Daily Mail on 13 July 2011 in which it was claimed that energy bills were set to rise by £1,000 as a result of green policies. This report was based on research by the bank Unicredit which was not publicly available. Carbon Brief claim that "It seems likely that the Mail had not seen the Unicredit report. The report did not detail how the figure had been calculated, or specify how much of the projected costs increase would be due to green policies."

The relevant article can be found here: http://www.dailyma il.co.uk/news/article- 2014068/ChrisHuhne-Families-face-1 k-green-energy.htmI

The article stated that "Families face punishing increases in energy bills of up to £1,000 a year to fund a switch to green energy and build new nuclear power stations." This figure was attributed in the article to research by Unicredit Bank. As the Carbon Brief submission states, this figure had appeared in the Financial Times ("the FT") six months before the article in the Daily Mail (see: http:Uftalphaville.ft.com/2011/01/11/454686/uk-fuel-poverty-and-the- security-of-supply/). The journalist spoke to Unicredit who confirmed that the passages cited by the FT were accurate. The relevant passage from this report for the purposes of the Daily Mail article stated as follows:

"In our view, the cost pressures from environmental and social programs and rising network charges will mean that household bills will continue to increase in real terms for many years to come. This excludes the impact of commodity price movements which could increase tariffs even further. We believe that these increases will make it harder for supply companies to pass on their costs to customers and will negatively impact the margins they can achieve going forward. We also believe that this will be exacerbated by the issue of affordability - with customers likely having to spend more of their disposable income on their energy bill in the future. According to our analysis, a typical UK energy bill could rise from the current level of GBP 1000 per year to over GBP 2000 per year by 2015. As investment occurs, bills could double every five years until 2020, in our view.”

It seemed clear, therefore, that Unicredit had taken the view that, "exclud[ing] the impact of commodity price movements" consumers' bills were likely to rise sharply as a result of "environmental and social programmes and rising network charges". The journalist's understanding was that all of these charges relate to efforts to reduce carbon emissions, including the switch to green energy, building new nuclear power stations and paying to insulate homes by various means.

The Unicredit report was compiled by its analyst Scott Phillips, who previously worked as a financial modeller for the energy regulator Ofgem. Given his background and expertise it is understandable that the journalist considered his estimates and calculations to be noteworthy.

The article also pointed out that "There is a fierce dispute between the Government, green campaigners, academics and industry analysts over the true cost of the programme" and included a quote fro m Dr Robert Gross, director of the Centre fo r Energy Policy and Technology at Imperial College, challenging the Unicredit estimates. On top of this, the article quoted a range of competing estimates for the impact on bills. These included the claim by the DECC that the impact on bills would be limited to £160 a year by 2030 and an estimate from Ofgem that bills would rise by up to 52%, which would equate to £600 a year by 2020.

In short, the journalist spoke to the bank who confirmed the accuracy of the relevant passages. As well as citing the Unicredit estimates, the journalist also referred to the competing Ofgem and DECC figures and made it clear that there was a significant debate going on as to the impact of green energy measures on consumer's bills. The article was well researched, based on a variety of reliable sources and balanced. It is difficult to see how it can be criticised in any way. c) An article was published in the Daily Mail on 12 October 2011 covering research which concluded that rising energy bills were the result of both increased wholesale gas prices and green policies. The article however omitted the findings about gas prices and focused only on green policies, misrepresenting the report's findings whic h were that rising gas prices would account for a significant proportion of any rise in bills.

The article concerned can be found here: http://www.dailymail.co.uk/news/article- 2048122/Green-taxes-fo rce-fuel-poverty.html

This article was based on research by Deloitte which stressed the impact of green taxes as being the major factor in driving up energy bills. Martin Brough, who wrote the report said that "In our view, mitigating bill increases would involve abandoning green targets or implementing a radical refinancing of the industry". Therefore, while the Deloitte report mentioned increases in gas prices as part of the explanation as to why energy bills were rising, a solution proposed to tackle these r is es was the abandoning o f a number of green policies.

It is a lso wor th noting that the article cites the contrary views of Dr Robert who "insists that families will be better off by switching from fossil fuels" . He is also quoted as saying that "Cutting support for renewables would slow down the UK's progress in reducing dependence on imported fossil fuels". Therefore, this article was based on reliable resources (in the form of a report by Deloitte) and was balanced by the inclusion of competing views. Again, it is difficult to see how it can be criticised. d) An article was published in the Daily Mail on 15 December 2011 in whic h it was said that electricity bills were to rocket by 25% because of 'green targets'. Carbon Brief assert that "this 25% figure was from an annex of the report, and applied only to the one in ten "non- typical" households which use electric heating and which would be disproportionately impacted. This was not mentioned in the article".

The article involved can be found here: http://www.dailymail.co.uk/news/article- 2074299/Eiectricity-bills-rocket-25-green-targets-say-Government.html

This was based on a report by the Committee on Climate Change ("CCC") in which it was concluded that the costs of low carbon policies would add 3 pence to the current 12.6 pence unit price of a kilowatt hour of electricity over the next decade (see p.17 of the report: http://www.theccc.org.uk/reports/household-energy-bills). This amounts to a 23.8% increase in electricity prices (this is where the 25% figure cited in the article was taken from).

Contrary to what Carbon Brief suggests, the article mentions in a number of places that those consumers whose homes are heated by electricity would see the biggest increases to their bills.

For example, the article states that "The impact on families will vary according to consumption, but the report found that those whose homes are heated by electricity could see their annual bills rise by more than £400." It also states that "The CCC's report suggests that people whose homes are heated by electricity will see their average bills rise from about £1,500 to £2,100 in 2020".

Furthermore, the article says that the report's "best estimate was that green measures would add only £110 to the typical annual fuel bill by 2020 ... [but] the switch to green energy will have a greater impact on electricity prices than gas prices."

In summary, not only was the 25% figure cited in the article accurately taken from the CCC report, but it was made very clear in the article that households which use electric heating would be disproportionately impacted. Therefore, it is difficult to see any basis for Carbon Brie f's complaint. e) An article was published in the Daily Mail on 17 February 2012 in whic h it was claimed that "Green taxes add 15% to your bills". Carbon Brief claim that the 15% figure inflated DECC's estimates of green costs from 7% to 15%, by conflating energy bills with electricity prices.

A copy of the relevant article can be found here: http://www.dailymail.co.uk/news/article- 2102848/Green-taxes-add-15-electricity-prices-Go ve r nme nt-f inally-admits-families-pay- meetemissions-targets.html

As you can see, the article makes it very clear that the 15% figure relates to electricity prices, not bills. For example, the very first line of the article says that "Electricity prices are 15 per cent more expensive that they should be because of green policies". There is also a graphic whic h makes this very clear. Carbon Br ie f's co mp laint is therefore unfounded.

It is true that the hard copy of the article included the headline "Official: Green taxes add 15% to your bills" (copy enclosed as attachment 2 (not printed)). However, this headline was not written by the journalist (as you are probably aware, reporters do not write headlines for their stories) and it appears that the word "b il ls " was used rather than "electric ity prices" purely as shorthand because o f the limited space available for the headline. Given the very clear graphic in the article and the fact that the first two words state "ELEC TRICITY prices", it is difficult to see how any readers can have been misled. In any event, the headline for the online vers io n o f the article was amended to read "e lectricity prices" rather than "b il ls".

We trust the explanations set out above dea l with any concerns you may have had regarding how ANL's titles report these matters, and show that Carbon Brie f's complaints are unfounded. Never the less, should you require any further information on anything that has been said, please let us know.

7 December 2012